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Articles 121 - 150 of 402
Full-Text Articles in Accounting
Measuring Credit Risk Using Qualitative Disclosure*, John Donovan, Jared Jennings, Kevin Koharki, Joshua A. Lee
Measuring Credit Risk Using Qualitative Disclosure*, John Donovan, Jared Jennings, Kevin Koharki, Joshua A. Lee
Faculty Publications
We use machine learning methods to create a comprehensive measure of credit risk based on qualitative information disclosed in conference calls and in management’s discussion and analysis section of the 10- K. In out-of-sample tests, we find that our measure improves our ability to predict future credit events (future bankruptcies, future interest spreads, and future credit rating downgrades) relative to existing credit risk measures developed by prior research (e.g., z-score). We also find our measure based on conference calls explains within-firm variation in future credit events; however, we find little evidence that the existing measures of credit risk developed by …
Accruals Earnings Management Proxies: Prudent Business Decisions Or Earnings Manipulation?, Theodore E. Christensen, Adrienna Huffman, Melissa F. Lewis-Western, Rachel Scott
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 …
How Has The Change In The Way Auditors Determine The Audit Report Date Changed The Meaning Of The Audit Report Date? Implications For Academic Research, Steven M. Glover, James C. Hansen, Timothy Seidel
How Has The Change In The Way Auditors Determine The Audit Report Date Changed The Meaning Of The Audit Report Date? Implications For Academic Research, Steven M. Glover, James C. Hansen, Timothy Seidel
Faculty Publications
Archival research in accounting often relies on the audit report date to capture the constructs of audit efficiency, audit timeliness, audit effort, or audit completion. Auditors’ view of what constitutes sufficient appropriate evidence to support the audit opinion, and consequently the date of the audit report, previously coincided with the substantial completion of audit fieldwork, which would be days or weeks before a 10-K filing. However, this view has shifted to coincide with the timing of the public issuance of clients’ financial statements (i.e., the 10-K filing date) following several regulatory actions, audit practice changes, and professional standard setting changes …
Prior Audit Experience And Cfo Financial Reporting Aggressiveness, Eric R. Condie, Kara M. Obermire, Timothy Seidel, Michael S. Wilkins
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, …
Perceptions Of Tone At The Top From The Inside: Insights Into Audit Pricing, Jace Garrett, Rani Hoitash, Douglas F. Prawitt
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 …
Issues Related To The Assessment Of The Effectiveness Of Management Review Controls: Roundtable Summary, Douglas F. Prawitt
Issues Related To The Assessment Of The Effectiveness Of Management Review Controls: Roundtable Summary, Douglas F. Prawitt
Faculty Publications
The Center for Audit Quality and the Financial Education & Research Foundation(FERF) of Financial Executives International (FEI) commissioned John Fogarty, Mark Beasley and Doug Prawitt to conduct an independent qualitative research study on Internal Control over Financial Reporting (ICFR) management review controls (MRCs), Perspectives on Management Review Controls: Challenges and Solutions (the Research Report). The research focused on subjective, judgmentbased MRCs. Through a series of detailed, semistructured interviews with preparers – in particular the control owners and control performers – the researchers gathered perspectives on how management determines what constitutes effective design, precision, implementation, execution and documentation of MRCs. The …
The Effects Of Pornography On Unethical Behavior In Business, Nathan W. Mecham, Melissa F. Lewis-Western, David A. Wood
The Effects Of Pornography On Unethical Behavior In Business, Nathan W. Mecham, Melissa F. Lewis-Western, David A. Wood
Faculty Publications
Pornography is no longer an activity confined to a small group of individuals or the privacy of one’s home. Rather, it has permeated modern culture, including the work environment. Given the pervasive nature of pornography, we study how viewing pornography affects unethical behavior at work. Using survey data from a sample that approximates a nationally representative sample in terms of demographics, we find a positive correlation between viewing pornography and intended unethical behavior. We then conduct an experiment to provide causal evidence. The experiment confirms the survey—consuming pornography causes individuals to be less ethical. We find that this relationship is …
Archival Evidence On The Audit Process: Determinants And Consequences Of Interim Effort*, Brant E. Christensen, Nathan J. Newton, Michael S. Wilkins
Archival Evidence On The Audit Process: Determinants And Consequences Of Interim Effort*, Brant E. Christensen, Nathan J. Newton, Michael S. Wilkins
Faculty Publications
Using proprietary data from a global accounting firm, we investigate the determinants of auditors’ interim effort as well as the impact of interim effort on audit quality, client disclosure timeliness, audit hours, and audit fees. Public statements from accounting firms and regulators suggest various benefits from accelerating auditor effort, but these claims remain largely untested. We find that interim effort is higher for large, complex clients that require integrated audits of both financial statements and internal control over financial reporting. With respect to consequences, we find that allocating relatively more work to the interim period is associated with a reduced …
Surrogation Fundamentals: Measurement And Cognition, Paul Black, Thomas Meservy, William B. Tayler, Jeffrey O. Williams
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
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. …
Prepare For Takeoff: Improving Asset Measurement And Audit Quality With Drone-Enabled Inventory Audit Procedures, Margaret H. Christ, Scott A. Emett, Scott L. Summers, David A. Wood
Prepare For Takeoff: Improving Asset Measurement And Audit Quality With Drone-Enabled Inventory Audit Procedures, Margaret H. Christ, Scott A. Emett, Scott L. Summers, David A. Wood
Faculty Publications
Auditors increasingly employ technologies to improve audit quality. Using a design science approach, we examine whether using drones and automated counting software can improve audit quality and thereby improve financial reporting. We assess three dimensions of audit quality—efficiency, effectiveness, and quality of audit documentation. We provide evidence that auditors can perform inventory counts with these technologies much more efficiently than they can with manual techniques, decreasing count time in our study from 681 hours to 19 hours. At the same time, auditors can maintain or improve audit effectiveness with these technologies, decreasing error rates in our study from 0.15% to …
New Frontiers For Internal Audit Research, Margaret H. Christ, Marc Eulerich, Ronja Krane, David A. Wood
New Frontiers For Internal Audit Research, Margaret H. Christ, Marc Eulerich, Ronja Krane, David A. Wood
Faculty Publications
Internal audit provides useful and valuable services to organizations and research has established its importance in improving corporate governance. However, the body of internal audit research is still small. Further, there are many new and emerging topics for which little is known and practitioners would like guidance. Based on surveys, interviews, and discussions with practitioners, we identify three broad areas for additional research: information technology, staffing and personnel development, and agile auditing. In each area, we describe the current practices and discuss the relevant accounting literature, noting gaps where additional inquiry is needed. We also provide a list of testable …
Anonymous Equity Research, Travis Dyer, Eunjee Kim
Anonymous Equity Research, Travis Dyer, Eunjee Kim
Faculty Publications
Crowdsourced financial information platforms often allow content contributors to publish equity research anonymously. This study examines whether investors value or discount information in anonymous equity research. In the short window around research releases, we find that investors’ stock price reaction to anonymous research is muted in comparison to nonanonymous research. Consistent with credibility concerns influencing investor response, we document that this discount to anonymous research dissipates as the monitoring of content contributors intensifies and as authors develop a reputation for high-quality reporting. In addition, we perform a content analysis on the research reports and find that the muted market reaction …
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
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 …
Determinants And Consequences Of Noncompliance With The 2013 Coso Framework, Kunsu Park, Juan Qin, Timothy Seidel, Jian Zhou
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 …
Beyond Borders: Uncertainty In Supragovernmental Tax Enforcement And Corporate Investment, Zackery D. Fox, Martin Jacob, Jaron H. Wilde, Ryan J. Wilson
Beyond Borders: Uncertainty In Supragovernmental Tax Enforcement And Corporate Investment, Zackery D. Fox, Martin Jacob, Jaron H. Wilde, Ryan J. Wilson
Faculty Publications
Amid growing globalization, many countries have offered tax incentives to attract corporate investment. Prior research studies the role such incentives play in firms’ location and investment choices. However, we have limited evidence on the role that uncertainty about the intensity of future tax enforcement plays in those decisions. In 2013, the European Commission (“E.C.”) abruptly began investigating tax ruling practices of several countries in response to allegations that certain firms received preferential tax treatment (“state aid cases”). We use this setting to study the economic consequences of increased uncertainty about future tax enforcement. We find evidence consistent with significant reductions …
The Effect Of Audit Materiality Disclosures On Investors’ Decision Making*, Brant E. Christensen, Aasmund Eilifsen, Steven M. Glover, William F. Messier Jr.
The Effect Of Audit Materiality Disclosures On Investors’ Decision Making*, Brant E. Christensen, Aasmund Eilifsen, Steven M. Glover, William F. Messier Jr.
Faculty Publications
Recent reviews of the academic literature indicate that little is known regarding how users evaluate the materiality levels auditors use or respond to quantitative materiality disclosure. Regulators around the world have taken different stances on whether materiality should, or should not, be disclosed in the auditor’s report. In response to the dearth of research on these policy decisions, we examine the effect of audit materiality disclosures, or lack thereof, on professional investors’ decision making across different investment contexts (debt vs. equity, public vs. private). Our study is designed to test global audit public policy and as such our hypotheses are …
Research Relevance And Research Productivity, Jared Moon, David A. Wood
Research Relevance And Research Productivity, Jared Moon, David A. Wood
Faculty Publications
Research in accounting education has evolved to include, among other areas, research relevance, faculty research productivity, and the use of journal lists. These topics offer new areas for research including investigating the benefits and risks of relevant/irrelevant research, how effectively faculty research is evaluated, the potential consequences of using journal lists, and much more. Although these areas have significant and wide‐ranging effects on faculty, much more empirical data is needed to inform decision making. This paper highlights these issues and makes suggestions for additional research to help the academy make better decisions by using data‐driven research findings.
The Settlement Norm In Audit Legal Disputes: Insights From Prominent Attorneys*, Eldar Maksymov, Jeffrey Pickerd, D. Jordan Lowe, Mark E. Peecher, Andrew Reffett
The Settlement Norm In Audit Legal Disputes: Insights From Prominent Attorneys*, Eldar Maksymov, Jeffrey Pickerd, D. Jordan Lowe, Mark E. Peecher, Andrew Reffett
Faculty Publications
Prior research indicates that most audit legal disputes settle. There is, however, little evidence of the factors that drive the settlement norm and its exceptions in audit legal disputes. To better understand these factors, we rely on theory related to how professionals manage risks and, as a result, how professions defend jurisdictional claims. We use this theoretical lens to help motivate four research questions that we probe by interviewing 27 prominent attorneys experienced in audit litigation. Consistent with our lens, our interview data indicate that attorneys manage their risks, including the risk of reputational loss, by settling based on their …
Audit Committee Accounting Expertise And The Mitigation Of Strategic Auditor Behavior, James C. Hansen, Ling Lei Lisic, Timothy Seidel, Michael S. Wilkins
Audit Committee Accounting Expertise And The Mitigation Of Strategic Auditor Behavior, James C. Hansen, Ling Lei Lisic, Timothy Seidel, Michael S. Wilkins
Faculty Publications
Our study is motivated by the theory of credence goods in the auditing setting. We propose that audit committee accounting expertise should reduce information asymmetries between the auditor and the client, thereby limiting auditors’ ability to over-audit and under-audit. Consistent with this notion, our results indicate that when audit committees have accounting expertise, clients (1) pay lower fees when changes in standards decrease required audit effort; (2) pay a smaller fee premium in the presence of remediated material weaknesses; and (3) have a reduced likelihood of restatement when audit market competition is high. Our findings in the under-auditing setting generally …
Perspectives On Management Review Controls: Challenges And Solutions—Insights From A Qualitative Study Of The Issues, John Fogarty, Mark Beasley, Douglas F. Prawitt
Perspectives On Management Review Controls: Challenges And Solutions—Insights From A Qualitative Study Of The Issues, John Fogarty, Mark Beasley, Douglas F. Prawitt
Faculty Publications
This study focuses on subjective, judgment-based management review controls (MRCs) used by management teams of public companies (hereinafter referenced as “preparers” or “organizations”) as part of their efforts to address the risk of material misstatements in financial reporting and to effectively and efficiently provide management with reasonable assurance that internal control over financial reporting (ICFR) is effective. This report provides information and insight useful to preparers, auditors, and regulators on issues surrounding the design, implementation, execution, and documentation of MRCs, including issues in the context of ICFR assessments and attestations under Section 404 of the Sarbanes-Oxley Act of 2002 (SOX). …
Sales Order Backlog And Corporate Social Responsibility, Li Sun, Brian Walkup, Kean Wu
Sales Order Backlog And Corporate Social Responsibility, Li Sun, Brian Walkup, Kean Wu
Faculty Publications
We examine the impact of sales order backlog, an important leading indicator of firm performance, on corporate social responsibility (CSR) performance (measured as responsible and irresponsible CSR performance). We rely on the stakeholder view and the resource availability view of CSR to develop our hypotheses. Under the stakeholder view, we posit a positive relation between sales order backlog and CSR performance. Under the resource availability view, we posit this relationship to be negative. Our empirical evidence shows a significant positive relation between order backlog and irresponsible CSR performance, suggesting that firms with higher order backlog demonstrate lower overall CSR performance. …
Fraud In Small Businesses: A Preliminary Study, Esther Bunn, Jack Ethridge, Kaili Crow
Fraud In Small Businesses: A Preliminary Study, Esther Bunn, Jack Ethridge, Kaili Crow
Faculty Publications
This study investigates the attitudes small business owners and managers have towards fraud and internal controls. Commonly small businesses consist of long-term friends and relatives and tend to embody a culture of family, love, and trust. Four factors were identified that lend themselves to a lack of internal controls and a breeding ground for fraud. A survey was distributed to small business owners and management. The responses were analyzed and compared to the data in the 2016 American Certified Fraud Examiners Report to the Nations. Of the four expectations studied, only the anticipated results of Expectation 1 were confirmed.
Déjà Vu: The Effect Of Executives And Directors With Prior Banking Crisis Experience On Bank Outcomes Around The Global Financial Crisis*, Anwer S. Ahmed, Brant E. Christensen, Adam J. Olson, Christopher G. Yust
Déjà Vu: The Effect Of Executives And Directors With Prior Banking Crisis Experience On Bank Outcomes Around The Global Financial Crisis*, Anwer S. Ahmed, Brant E. Christensen, Adam J. Olson, Christopher G. Yust
Faculty Publications
We investigate the effect of executives and directors with prior banking crisis experience on bank outcomes around the global financial crisis (GFC). Executives and directors with previous experience leading banks through a bank crisis may have been uniquely able to understand the risks, recognize the warnings signs early, and thus respond more effectively to the GFC. Controlling for other executive, director, and bank-level characteristics, we examine whether bank performance, risk taking, and accounting quality in the period immediately before and during the GFC are affected by having executives or directors who previously served as bank executives or directors during the …
The Loss Of Information Associated With Binary Audit Reports: Evidence From Auditors’ Internal Control And Going Concern Opinions*, Brant E. Christensen, Stevanie S. Neuman, Sarah C. Rice
The Loss Of Information Associated With Binary Audit Reports: Evidence From Auditors’ Internal Control And Going Concern Opinions*, Brant E. Christensen, Stevanie S. Neuman, Sarah C. Rice
Faculty Publications
This study provides evidence that binary signals in audit reports are unable to fully communicate underlying risks that are inherently continuous in nature. Specifically, we find that companies whose audit reports signal an improvement in internal control effectiveness relative to the prior year are still more likely to subsequently restate the current year’s financial statements than companies with no material weaknesses in either year. Similarly, companies deemed to no longer have substantial doubt of continuing as a going concern are still more likely to declare bankruptcy than companies with no going concern opinion in either year. Results in both settings …
Shadow It Use, Outcome Effects, And Subjective Performance Evaluation, Drew Allen, F. Greg Burton, Steven D. Smith, David A. Wood
Shadow It Use, Outcome Effects, And Subjective Performance Evaluation, Drew Allen, F. Greg Burton, Steven D. Smith, David A. Wood
Faculty Publications
The use of shadow IT (information technology systems not sanctioned or monitored by a company’s IT department) may be seen as either a form of organizational misbehavior or proactive and creative problem-solving. We examine whether these differing possible perceptions have implications for the subjective evaluation of subordinate performance. In our experiment, participants choose whether to award a bonus to an employee when different IT systems are used (normal vs. shadow IT) across different outcome levels (high vs. low outcomes). We find that employees using shadow IT are less likely to receive the bonus in both high and low outcome conditions …
The Effects Of Different Types Of Internal Controls On Employee Self-Control, Drew Allen, William G. Heninger, Scott L. Summers, David A. Wood
The Effects Of Different Types Of Internal Controls On Employee Self-Control, Drew Allen, William G. Heninger, Scott L. Summers, David A. Wood
Faculty Publications
One key reason companies implement internal controls is to reduce the likelihood of unethical behavior. Yet, research on ego depletion from psychology suggests that some controls may cause reductions in employees’ self-control, which could lead to increases in unethical behavior. Therefore, this study examines how different types of controls—namely preventive, detective with immediate feedback, and detective with delayed feedback—impact self-control and ethical judgments. Based on the results of three different experiments with 462 participants, we find no significant relation between self-control and the types of internal controls tested. Furthermore, we find that the types of controls tested have no effect …
Factors That Influence The Perceived Use Of The Internal Audit Function's Work By Executive Management And Audit Committee, Marc Eulerich, Joleen Kremin, David A. Wood
Factors That Influence The Perceived Use Of The Internal Audit Function's Work By Executive Management And Audit Committee, Marc Eulerich, Joleen Kremin, David A. Wood
Faculty Publications
The internal audit function (IAF) is an important component of high-quality corporate governance. We study how the head of internal audit perceives the executive management team and the audit committee to rely on the IAF's work. It is not obvious from prior work or professional anecdotes whether the IAF satisfies the needs of both groups. If multiple factors influence the IAF's work, chief audit executives (CAEs) may find themselves in a situation with competing demands, which could then compromise quality for all stakeholders. Based on a unique dataset from CAEs, two logistic regression models identify factors that influence the degree …
Reward Type And Performance: An Examination Of Organizational Wellness Programs, William G. Heninger, Steven D. Smith, David A. Wood
Reward Type And Performance: An Examination Of Organizational Wellness Programs, William G. Heninger, Steven D. Smith, David A. Wood
Faculty Publications
We examine organizational control in the context of wellness programs—organizational initiatives designed to improve the physical and mental health of employees. In a field study setting, we examine the associations of three different types of incentives (cash, gift cards, and tangible rewards) with wellness program performance. We find that employees who successfully complete program challenges are associated with greater weight loss. We also find participants choosing gift cards are associated with the greatest program success, even though cash rewards are selected more than twice as often as gift cards. Tangible rewards are the least frequently selected reward and are associated …
Is There Information Content In Information Acquisition?, Michael S. Drake, Darren T. Roulstone, Bret A. Johnson, Jacob Thornock
Is There Information Content In Information Acquisition?, Michael S. Drake, Darren T. Roulstone, Bret A. Johnson, Jacob Thornock
Faculty Publications
In this study, we examine whether investors’ actions to acquire accounting information are predictive of future firm performance because these actions partially reveal investors’ private expectations of this performance. Using a database of EDGAR downloads, we find some evidence that information acquisition of accounting reports by EDGAR users is, on average, predictive of future firm performance. We then determine the identity of the EDGAR user and examine whether different users’ private expectations will be relatively more predictive of subsequent performance. We find that the information acquisition activities of more sophisticated institutional users (e.g., hedge funds, investment banks) are more strongly …