Accounting Commons^™

Prior Audit Experience And Cfo Financial Reporting Aggressiveness, Eric R. Condie, Kara M. Obermire, Timothy Seidel, Michael S. Wilkins

Faculty Publications

In this study, we investigate the financial reporting behavior of chief financial officers (CFOs) with significant prior audit experience. Our tests indicate that, on average, CFOs who were former audit managers or partners report less aggressively than CFOs without prior audit experience. Thus, the mindset that auditors develop during their time in public accounting – which should value objective, transparent, and conservative financial reporting – appears to persist when auditors take high-level positions in industry. However, we also find that the reporting behavior of prior-auditor CFOs becomes more aggressive over time as the salience of their audit experience decays. Further, …

Surrogation Fundamentals: Measurement And Cognition, Paul Black, Thomas Meservy, William B. Tayler, Jeffrey O. Williams

Faculty Publications

Measurement is a fundamental part of accounting. A primary purpose of measurement is to provide more concrete representations of abstract strategic objectives. A potential consequence of using measures to proxy for less-tangible strategic constructs is the tendency for managers to fall prey to surrogation, losing sight of strategic constructs and behaving as though measures are the constructs of interest. We show that surrogation is a nonconscious process. We also extend understanding of the conditions necessary for surrogation to occur by showing that mere awareness of measurement (even absent compensation) is sufficient to induce surrogation. These findings have implications for any …

Do We Matter? The Attention Policy Makers, Academics, And The General Public Give To Accounting Research, F. Greg Burton, Scott L. Summers, T. Jeffrey Wilks, David A. Wood

Faculty Publications

Many question the value of accounting scholarship to society. We compared the attention the general public, policy makers, and academics give to academic accounting research relative to other business disciplines and other more general disciplines (economics, psychology, and other sciences). The results indicate that accounting research receives significantly less attention from the general public than all other disciplines and also performs relatively poorly in receiving policy makers’ attention compared to both economics and finance. Articles in other disciplines’ elite journals cite relatively little of accounting’s elite-level publications, but non-elite journal articles cite accounting research in similar numbers to other disciplines. …

Are Internal Audits Associated With Reductions In Perceived Risk?, Joseph V. Carcello, Marc Eulerich, Adi Masli, David A. Wood

Faculty Publications

We examine whether internal auditing provides value to organizations by reducing risk. We compare the changes in risks between audited business units and matched non-audited units within the same company. This design allows us to isolate the importance of an internal audit while holding constant changes in risk due to the organization and time period. Based on ratings from the heads of audited and non-audited units, we find that managers of audited units perceive a greater decline in risk as well as a greater increase in performance compared to managers of non-audited units. We also find that companies that have …

The Effect Of New Accounting Standards On The Performance Of Quantitative Investors*, Travis Dyer, Nicholas Guest, Jia Yin (Elisha) Yu

Faculty Publications

Quantitative investing relies on stable data generating processes and limited human involvement, which could create lower flexibility in the face of changing economic conditions. In this study, we examine quantitative investors’ ability to navigate a common and material change to the financial data generating process: new accounting standards. We find that returns of quantitative mutual funds temporarily decrease following the implementation of standards that change the definition of key accounting variables. The lower performance we document is relative to more traditional “discretionary” funds that rely heavily on human skill and judgment to make day-to-day investment decisions. Our result is predictably …

Earnings Announcement Delays And Implications For The Auditor-Client Relationship, Kimball Chapman, Michael S. Drake, Joseph Schroeder, Timothy Seidel

Faculty Publications

We examine whether delays in the expected release of annual earnings have implications for the future auditor-client relationship. Managers have strong incentives to release earnings on schedule and auditors play an important role in helping their clients avoid costly earnings announcement delays. We find an increased likelihood of subsequent auditor-client realignments after earnings announcement delays. We further find that clients changing auditors realign with audit firms that better meet their earnings announcement timing demands without any evidence of a significant compromise to the reliability of the financial statement numbers in the earnings announcement. Our results help inform regulatory concerns about …

Disclosure Sentiment: Machine Learning Vs Dictionary Methods, Richard Frankel, Jared Jennings, Joshua A. Lee

Faculty Publications

We compare the ability of dictionary-based and machine-learning methods to capture disclosure sentiment at 10-K filing and conference call dates. Like Loughran and McDonald (2011), we use returns to assess sentiment. We find that measures based on machine learning offer a significant improvement in explanatory power over dictionary-based measures. Specifically, machine-learning measures explain returns at 10-K filing dates, while measures based on the Loughran and McDonald dictionary only explain returns at 10-K filing dates during the time period of their study. Moreover, at conference-call dates, machine-learning methods offer an improvement over the Loughran and McDonald dictionary method of a greater …

Accruals Earnings Management Proxies: Prudent Business Decisions Or Earnings Manipulation?, Theodore E. Christensen, Adrienna Huffman, Melissa F. Lewis-Western, Rachel Scott

Faculty Publications

Over the last 5 years, the top accounting journals have published 388 articles that incorporate an empirical proxy for accruals-based earnings management. Researchers use these proxies to measure diverse managerial activities that represent fundamentally different constructs (from beneficial earnings management at one end of the spectrum to earnings manipulation at the other). We present a simple framework that defines the specific construct of “earnings manipulation” and places it within the context of the broader concept of “earnings management.” At the construct level, one distinguishing characteristic of earnings manipulation is that accruals reversals cause future earnings to be lower than earnings …

Factors Affecting The Outcomes Of Legal Claims Against Auditors, Karen D. De Meyst, D. Jordan Lowe, Mark E. Peecher, Jeffrey Pickerd, Andrew Reffett

Faculty Publications

Maksymov, Pickerd, Lowe, Peecher, and Reffett (2020b) draw insights based on interviews with 27 prominent audit litigation attorneys about the factors affecting the initiation of legal claims against auditors and how such factors affect settlement outcomes. We summarize their key findings and discuss important implications for audit practitioners. Specifically, we focus on the key factors that affect plaintiff attorneys’ willingness to pursue legal claims against auditors, including the merits of the claim, size of alleged economic damages, auditors’ ability to pay, and the expected cost to pursue the claim. We also discuss the reasons why most audit disputes settle (as …

The Effects Of High Estimate Uncertainty In Auditor Negligence Litigation*, Jeffrey Pickerd, M. David Piercey

Faculty Publications

We examine how jurors’ negligence judgments and attorneys’ out-of-court settlements are differently impacted by two features of a materially misstated accounting estimate—the amount of estimate uncertainty and whether the misstated account is disaggregated into its own line-item or aggregated with other accounts into a single financial statement line-item. We predict and find that jurors and attorneys react to estimate uncertainty in opposite directions under common conditions. This finding is important because when jurors’ judgments and attorneys’ settlements differ, research into juror judgments alone may not capture a complete picture of auditor liability because the vast majority of audit litigation is …

Determinants And Consequences Of Noncompliance With The 2013 Coso Framework, Kunsu Park, Juan Qin, Timothy Seidel, Jian Zhou

Faculty Publications

The Securities and Exchange Commission (SEC) requires firms to use a ‘‘suitable framework” as a basis for evaluating the effectiveness of internal control over financial reporting. The COSO 1992 framework was the most commonly used suitable framework until it was superseded by the COSO 2013 framework. Because strict compliance with the updated framework was not enforced by regulatory authorities, a nontrivial number of firms did not comply in a timely fashion. We investigate determinants and consequences of noncompliance with the COSO 2013 framework following the supersession of the COSO 1992 framework. We find that noncompliance is positively associated with proxies …

Does Visibility Of An Engagement Partner’S Association With Recent Client Restatements Increase Fee Pressures From Non-Restating Clients?, Wuchun Chi, Ling Lei Lisic, Linda A. Myers, Mikhail Pevzner, Timothy Seidel

Faculty Publications

We examine whether engagement partners who have recently been associated with client restatements experience increased audit fee pressures from their non-restating clients. Using data from the United States (U.S.) and Taiwan, we find evidence of lower audit fees among non-restating companies whose audit engagement partner was recently associated with another client’s restatement. These findings are generally strongest when the partner-associated restatement is more prominent or severe, and in the U.S., when non-restating clients are in the same industry as the restating client. Although we find very limited evidence that fee pressures lead to lower quality audits for these partners’ other …

Perceptions Of Tone At The Top From The Inside: Insights Into Audit Pricing, Jace Garrett, Rani Hoitash, Douglas F. Prawitt

Faculty Publications

Tone at the top plays an important role in entities’ internal control over financial reporting (ICFR) and in auditors’ planning and risk assessment decisions. Using a novel measure based on employee perceptions, we find that strong tone at the top is associated with reduced audit pricing and that this relation holds even for firms that report effective ICFR. This relation is stronger when employees’ tone perceptions are more consistent throughout the organization, when accounting is more complex, and when earnings manipulation risk is higher. We also find that strong tone is negatively associated with the incidence of reported material weaknesses …

Environmental Awareness Is Leading To A Troubling Future For The Airline Industry, Ashlyn K. Unga

Marriott Student Review

Global warming is not only causing climatic temperatures to rise— it is also heating up the socio-political scene across the globe. Caught in the crossfire is the airline industry, targeted by environmental activists who categorize flight as an unnecessary mode of travel. As this movement gains traction, how will air fare in this age of flight-shaming? Ashlyn Unga explores anticipated governmental regulations and measures the airline industry must take as a result of this movement.

Podcast Review: Amy Antonelli On Vision And Purpose, Mckayla Lindman

Marriott Student Review

A review of Amy Antonelli's podcast.

Book Review - Contagious: Why Things Catch On, Christy Swatling

Marriott Student Review

In his New York Times Bestseller, Contagious: Why Things Catch On, Jonah Berger delves into what makes products and ideas go viral. Through hundreds of intriguing and sometimes jaw-dropping stories, Berger identifies six key components to make everything—from a YouTube video to a new tech gadget—become contagious.

Putt Yourself Out There! Golf As An Upper Hand In The Business World, Allysha M. Mateo

Marriott Student Review

Most everyone is aware that networking and relationship building hold the keys to success within the business world. But just how are these networks so carefully cultivated? Recent statistics suggest that golf is a major player in cutting behind-the-scenes business deals. Approximately 90% of Fortune 500 CEOs play golf, and executives who play golf earn 17% more than those who don’t. Golf is a networking tool available to virtually anyone: the old and young, male and female, athletic and unathletic alike. It aids in building relationships with clients, customers, vendors, and colleagues, simultaneously advancing the golfer’s career and helping to …

Buzzwords: Jargon That Will Keep You Going Throughout The Year, Sarah Romney

Marriott Student Review

Five buzzwords including advertainment, "go live," pivot, customer journey, and mashup.

Learning From The Swiss, Aubrey Wright

Marriott Student Review

The trades are in trouble. With less students choosing a vocational education, the United States is facing a rapidly growing gap in skilled vocational labor. The answer: the mighty apprenticeship program, courtesy of the Swiss. The Swiss model of apprenticeships help the bottom line of companies. It also trains students for promising careers. By taking clues from the Swiss, the US can begin solving its vocational trade woes.

Fashion Copycats And Copyright Law, Rowena Natasha

Marriott Student Review

Is fashion an art? Or a utilitarian part of our life? Thanks to US copyright laws, "fast fashion" companies like H&M and Zara are making windfall gains by copying new designs, even at the expense of small start-ups. But don't start writing legislation yet. Without "fashion copycats" making affordable yet trendy products, the fashion industry would be left dependent on a small-pool of upper-class consumers.

Building Information Modeling: Risks, Benefits, And Trends In Construction, Tanner Duron

Marriott Student Review

Welcome to the information age. Building Information Technology (BIM) offers the construction industry a way to manage everything, from sourcing to construction to maintenance. BIM has significant risks, but also boasts enough benefits to make every firm in the AEC industry ready to start integrating its use. As digital natives, it is up to the rising generation of workers to spearhead the wide-spread use of BIM.

Interior Design In The Workplace, Bryce Cindrich

Marriott Student Review

While people generally spend much of their time in their home, time spent in the workplace is usually a close second. Why should people care less about how their office is set up than their home? A well-designed interior at the workplace can help promote employee productivity and support their well-being, build a sense of community, improve team collaboration, and attract and retain talent.

Editor's Letter: Expectations

Marriott Student Review

This issue of Marriott Student Review (MSR) is all about developing greater expectations for the future, finding new ways of accomplishing our dreams, and fostering relationships, even in the digital world of Zoom and Team meetings. Even though our expectations have been unexpectedly altered, in the end, the shape of our lives may be ultimately better.

Mindfulness: A Promising Practice To Reduce Accountant Stress, Abigail Anderson

Marriott Student Review

This article considers the practice of mindfulness as an approach to reduce stress within the lives of accountants. Mindfulness has existed for centuries as a Buddhist tradition and has only recently become popular in the Western world as a stress-reduction technique that can lead to improved mental and emotional well-being. This article also examines the prevalence of mindfulness within the Top 10 accounting firms in the United States and some results regarding employee performance. As more and more firms begin to utilize mindfulness as a low-cost method to better employee performance and well-being, university accounting programs should consider incorporating the …

The Problem With Government Bailouts, Nathan Scott

Marriott Student Review

Americans are told to have 6 months of expenses saved for difficult times, but businesses are told not to worry; the government will take care of them. Past bailouts have set a nasty precedent that must change; government bailouts need reform if they are to continue in the future.

The Slow Death Of The Nonprofit Sector And How To Stop It In Three Steps, Taylor S. Mcpheeters

Marriott Student Review

What is happening to the nonprofit sector?

Taylor McPheeters explores the nonprofit Starvation Cycle—the eventual downfall of the nonprofit sector—and what you can do to end the cycle before it's too late.

Values Create Values, Chase M. Geertsen

Marriott Student Review

The days of companies focusing solely on maximizing shareholder value are over. In today's world, profitable companies create value by meeting the needs of their stakeholders.

Internships Shape Students' Future Career, Maria F. Arrayan

Marriott Student Review

Finding an internship has been more difficult than before due to COVID-19. For many, the search for an internship may be frustrating or pointless during this difficult time. Students need to empower themselves with the right tools to find an internship. Maria Fernanda Arrayan talks about the benefits of an internship and four ways to find one. Read this article to find motivation in your search for an internship and try a new way to find your next internship!

Go Green: Make Green, Sam Montague

Marriott Student Review

While cost might seem like an obstacle to some, adopting sustainable practices can turn out to be profitable for most companies. Recent research find positive correlation between business efforts and the consumer response, showcase direct benefits to the business, and provide suggestions to put the findings into practice.

Specialization: Do Your Job Well Helping Students Who Are Considering A Career In Programming Know How To Invest Their Time., Scott Pulley

Marriott Student Review

The article examines the effects of specialization on the hiring process for undergraduates studying programming whether in information systems or computer science.