Accounting Commons^™

How College Business Students Learn With Emphasis On Differences Between Majors, Nikki Shoemaker, Marie Kelly

Faculty Publications

Students' learning styles play an important role in their success in the classroom and beyond. This study explores the learning styles of business students so that professors can better understand the instructional methods that are most beneficial for their students. A survey of 205 business students in an introductory accounting course revealed that the most common learning style was visual, while the second most common learning style was kinesthetic. These results suggest that a large number of business students process and internalize new information best when they see or actively participate in what they are learning.

Fiscal Health Analysis Of Texas And Its Municipalities, Mary Fischer, Treba Marsh, Esther Bunn

Faculty Publications

Recently insolvent municipalities have declared bankruptcy when they are unable to meet their bond debt or pay their outstanding liability obligations. This analysis looks at the fiscal health of Texas municipalities who have issued debt in the past two years to identify those suffering financial stress that would possibly result in the municipality seeking bankruptcy to resolve its fiscal issues.

This investigation analyzes the State of Texas and local municipalities fiscal health using the revised Altman Z-Score with the governments annual financial report data. Additional analysis relating the Z-score to entities bond rating is reported. These findings provide an effective …

Financial Statement Racing, Marie Kelly, Nikki Shoemaker

Faculty Publications

This paper describes an active learning activity called Financial Statement Racing. This game has been used in several introductory financial accounting courses to help students understand the normal balances and financial statement classifications of multiple financial statement accounts. The activity encourages students to work together in a team to place racecars on the appropriate financial statement racetrack in the correct debit or credit lane. These teams compete against other teams in the class to try to win the race to the end of the financial statement racetrack.

Real-World Flowcharting Willy Wonka Style!, Kelly Noe

Faculty Publications

The purpose of this paper is to discuss the development, implementation and outcome of a field-based learning flow-charting project that was conducted in an accounting information systems (AIS) course. The emphasis for the project was strengthening the students' critical thinking skills. This paper advances AIS education by sharing a field-based learning project geared toward AIS.

The Effects Of Using The Internal Audit Function As A Management Training Ground Or As A Consulting Services Provider In Enhancing The Recruitment Of Internal Auditors, F. Greg Burton, Matthew W. Starliper, Scott L. Summers, David A. Wood

Faculty Publications

This paper examines factors that influence job applicants’ willingness to apply for positions in internal auditing. We predict and find evidence that job applicants are dissuaded from applying for internal audit positions. In two separate experiments involving participants at seven universities, we discover that this phenomenon is most prevalent for applicants with business experience. Experienced applicants are 20 and 33 percent less willing to apply for a position if it is labeled as “internal audit” versus “accounting” in the two experiments, respectively. In addition, we find that the only experimental condition that increases interest in applying for an internal audit …

The Comovement Of Investor Attention, Michael S. Drake, Darren T. Roulstone, Jared Jennings, Jacob Thornock

Faculty Publications

Prior literature has documented that investor attention and constraints on that attention are associated with the pricing of stocks. We introduce the concept of attention comovement, which is the extent to which investor attention for a firm is explained by attention paid to the firm’s industry and the market in general. We find that attention comovement is non-trivial for the average firm and is related to firm characteristics, such as size and visibility. We also find that the comovement of investor attention has market consequences, in that it is positively associated with excess stock return comovement. Finally, we show that …

Taking The Long Way Home: U.S. Tax Evasion And Offshore Investments In U.S. Equity And Debt Markets, Michelle Hanlon, Edward L. Maydew, Jacob Thornock

Faculty Publications

We empirically investigate one form of illegal investor-level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round-tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker’s (1968) economic theory of crime, we identify the tax evasion component by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investorlevel tax evasion affecting cross-border equity and debt investment.

Them’S Fightin’ Words: The Effects Of Violent Rhetoric On Ethical Decision Making In Business, Joshua R. Gubler, Nathan P. Kalmoe, David A. Wood

Faculty Publications

Business managers regularly employ metaphorical violent rhetoric as a means of motivating their employees to action. While it might be effective to this end, research on violent media suggests that violent rhetoric might have other, less desirable consequences. This study examines how the use of metaphorical violent rhetoric by business managers impacts the ethical decision making of employees. We develop and test a model that explains how the use of violent rhetoric impacts employees’ willingness to break ethical standards, depending on the source of the rhetoric. The results of two experiments suggest that the use of violent rhetoric by a …

Rotational Internal Audit Programs And Financial Reporting Quality: Do Compensating Controls Help?, Margaret H. Christ, Adi Masli, Nathan Y. Sharp, David A. Wood

Faculty Publications

A report from the Institute of Internal Auditors finds that a majority of Fortune 500 companies systematically rotate internal auditors out of the internal audit function and into operational management (IIA, 2009a). We use semi-structured interviews with 11 chief audit executives and 2 audit committee chairmen to develop an initial framework focusing on how this practice affects financial reporting quality. We then test these associations with archival data and find that companies that use a rotational staffing model for the internal audit function have significantly lower financial reporting quality than companies that do not. However, we find that several compensating …

Short Sellers And The Informativeness Of Stock Prices With Respect To Future Earnings, Michael S. Drake, James N. Myers, Linda A. Myers, Michael D. Stuart

Faculty Publications

In this paper, we examine whether short interest improves the informativeness of stock prices with respect to future earnings. We find that short selling strengthens the relation between current returns and future earnings, especially in settings where short sellers are likely to possess an information advantage, such as when a firm’s information environment is weak or when analysts are highly optimistic about future earnings growth. Collectively, our results illustrate the important role that short sellers play in improving the extent to which current stock prices reflect information about future earnings and thus, in improving market efficiency.

Market (In)Attention And The Strategic Scheduling And Timing Of Earnings Announcements, Ed Dehaan, Terry Shevlin, Jacob Thornock

Faculty Publications

We investigate whether managers “hide” bad news by announcing earnings during periods of low attention, or by providing less forewarning of an upcoming earnings announcement. Our findings are consistent with managers reporting bad news after market hours, on busy days, and with less advance notice, and with earnings receiving less attention in these settings. Paradoxically, our findings indicate that managers also report bad news on Fridays, but we do not find lower attention on Fridays. Further, we find negative returns when the market is notified of an upcoming Friday earnings announcement, which is consistent with investors inferring forthcoming bad news.

Insights Into Large Audit Firm Sampling Policies, Brant E. Christensen, Randal J. Elder, Steven M. Glover

Faculty Publications

Changes in the audit profession after Sarbanes-Oxley, including mandatory audits of internal control over financial reporting and PCAOB oversight and inspection of audit work, have potentially changed the nature and extent of audit sampling in the largest accounting firms. In our study, ‘‘Behind the Numbers: Insights into Large Audit Firm Sampling Policies’’ (Christensen, Elder, and Glover 2015), we administered an extensive, open-ended survey to the national offices of the Big 4 and two other international accounting firms regarding their firm’s audit sampling policies. We find variation among the largest firms’ policies in their use of different sampling methods and in …

The Effects Of Out-Of-Regime Guidance On Auditor Judgments About Appropriate Application Of Accounting Standards, H. Scott Asay, Tim Brown, Mark W. Nelson, T. Jeffrey Wilks

Faculty Publications

Accountants making judgments with respect to a particular set of standards are increasingly aware of standards from other reporting regimes that offer additional or conflicting guidance. In fact, IFRS encourages reliance on out-of-regime standards when IFRS lacks guidance. This paper reports the results of two experiments which provide evidence that auditors in such circumstances are vulnerable to contrast effects, whereby reporting judgments under IFRS are systematically influenced away from the accounting treatment supported by standards from another regime (U.S. GAAP). Contrast effects are observed (1) when out-of-regime standards are considered before making a reporting judgment under IFRS and (2) when …

The Effect Of Information Choice On Auditors’ Judgments And Confidence, Steven D. Smith, William B. Tayler, Douglas F. Prawitt

Faculty Publications

Previous research finds that individuals place more weight on information when they choose to obtain it than when they acquire it without explicit choice. We examine whether litigation risk and auditor experience influence auditors’ susceptibility to this information choice effect. In our experiment, auditor participants evaluate the likelihood of an inventory obsolescence issue for a hypothetical client subsidiary. We find that in a high litigation risk setting, less-experienced auditors weight information they choose to acquire more heavily than do less-experienced auditors who acquire the same information without choice. Further, we predict and find that auditors choosing to acquire information are …

An Examination Of How Entry-Level Staff Auditors Respond To Tone At The Top Vis-À-Vis Tone At The Bottom, Jeffrey Pickerd, Scott L. Summers, David A. Wood

Faculty Publications

Prior academic and practitioner literature argues that the ethical tone at the top of an organization is a key factor in establishing an effective internal control environment. Drawing on self-concept maintenance theory and in-group bias theory, we predict that entry-level staff auditors will disregard a company’s ethical standards unless they observe a strong ethical tone from both their partner (tone at the top) and their supervising senior (tone at the bottom). Also, we predict that staff auditors will be more influenced by the tone of their supervising senior than the partner when these two individuals provide conflicting tones. In a …

Compensation Or Feedback: Motivating Performance In Multidimensional Tasks, Margaret H. Christ, Scott A. Emett, William B. Tayler, David A. Wood

Faculty Publications

Employees often perform tasks with multiple dimensions. In this study, we examine how employees’ performance on multidimensional tasks differs under different control structures. We conduct two experiments in which we manipulate the presence of compensation controls and the presence of feedback controls on multiple task dimensions. Our findings suggest that when employees are compensated on multiple dimensions they commit to multiple goals and divide their attention among those task dimensions. However, when feedback controls are implemented on one task dimension with compensation controls on another dimension, employees can improve performance on individual dimensions as well as their overall task performance. …

Controls And The Asymmetric Stickiness Of Norms, Scott A. Emett, Ronald N. Guymon, William B. Tayler, Donald Young

Faculty Publications

This study investigates how formal control systems and the behavior of peers influence behavior in accounting settings. We manipulate formal controls and peer behavior (social norms) in a laboratory experiment, allowing us to precisely investigate the interactive effect of these two factors on behavior. We provide evidence that weak controls lead to more socially-interested behavior, while strong controls lead to more self-interested behavior. We also provide evidence that individuals conform more to social norms that conflict with the behavior that formal controls induce. Finally, we find that individuals preferentially attend and conform to the self-interested actions of peers (as opposed …

Citation-Based Accounting Education Publication Rankings, Mark Metcalf, Kevin Stocks, Scott L. Summers, David A. Wood

Faculty Publications

We extend prior accounting education research by ranking accounting education publications based on citation counts. We collect publications in two accounting education specialty journals, Issues in Accounting Education and Journal of Accounting Education, and 11 other high-quality journals included in the Summers and Wood (2015a) database. We aggregate rankings by institution and by individuals for both traditional publications (including “instructional resource” papers that are not case-based) and cased-based publications. We also provide citation-based benchmarking data for accounting education scholarship. We present our results in time windows of the most recent 6 years (i.e., 2008–2013, inclusive), 12 years (i.e., 2002–2013, inclusive), …

The Usefulness Of Historical Accounting Reports, Michael S. Drake, Darren T. Roulstone, Jacob Thornock

Faculty Publications

In this study we investigate the usefulness of historical accounting reports(10-Ks and 10- Qs) by examining four settings where we expect investors to acquire historical reports in order to obtain qualitative and quantitative information that contextualizes and conditions information released in the current period. Using a novel dataset that tracks user requests for accounting reports stored in the SEC EDGAR database, we find that requests for historic reports during the fiscal year are positively associated with financial reporting complexity and that requests around earnings announcements are positively associated with accounting discretion and negative earnings shocks (particularly for conservative firms). Finally, …

March Market Madness: The Impact Of Value-Irrelevant Events On The Market Pricing Of Earnings News*, Michael S. Drake, Kurt H. Gee, Jacob Thornock

Faculty Publications

Each year, the NCAA basketball tournament (March Madness) is a daytime distraction for millions of people, providing a largely exogenous shock to investor attention. We investigate whether March Madness influences the market response to earnings by diverting investor attention away from earnings news. We find that the price reaction to earnings news released during March Madness is muted. This result generally holds across several samples and additional analyses. We also find that the result is more muted for low institutional ownership firms, consistent with the effect being driven by less-sophisticated investors. Furthermore, we find that it takes the market 30 …

When Does Pre-Ipo Financial Reporting Trigger Post-Ipo Legal Consequences?, Mary Brooke Billings, Melissa F. Lewis-Western

Faculty Publications

Prior research suggests that the fear of litigation precludes most managers from manipulating earnings in the initial public offering (“IPO”) setting. Yet, managers’ restraint is perhaps unwarranted: research has not yet linked instances of aggressive pre-IPO reporting to increased litigation risk. This paper investigates when aggressive IPO reporting triggers legal consequences. Examining 2,037 IPOs, we find that even when ex post evidence indicates the presence of earnings inflation, litigation is more likely to occur when investors have relied on the suspect earnings during the pricing process. Why might investors rely on some firms’ abnormal accruals when valuing the IPO and …

Historical Cost Measurement And The Use Of Dupont Analysis By Market Participants, Asher Curtis, Melissa F. Lewis-Western, Sara Toynbee

Faculty Publications

We investigate whether historical cost measurement of assets lowers the usefulness of DuPont analysis for investors. Because firms report assets at modified historical cost under US GAAP, accounting ratios can be biased upward when assets have appreciated. Thus, variation in asset turnover, which is the DuPont ratio most affected by asset measurement, can be due to both economic forces and measurement effects. We assess the extent of measurement effects using the average age of a firm’s assets and find that asset turnover ratios are higher and more persistent for firms with older assets. Forecast errors of asset turnover are associated …

Disclosure Transparency About Activity In Valuation Allowance And Reserve Accounts And Accruals-Based Earnings Management, Cory A. Cassell, Linda A. Myers, Timothy Seidel

Faculty Publications

We examine the relation between the transparency of disclosures about activity in valuation allowance and reserve accounts and accruals-based earnings management. We classify disclosures as being transparent if they provide detailed information about activity in the allowance and reserve accounts during the fiscal period. We find strong evidence that the extent of accruals-based earnings management is lower among companies with transparent disclosures than among companies without transparent disclosures. We also investigate whether the extent of accruals-based earnings management is lower for companies that provide transparent disclosures in one comprehensive schedule (i.e., the Schedule II) relative to those that provide transparent …

A Bridge To Nowhere And Other Financial Issues, Annetta M. Gibson

Faculty Publications

PowerPoint presentation for the Lake Union Trust Services Seminar, October 19-22, 2014

Here Comes The Auditor!, Annetta M. Gibson

Faculty Publications

A slide presentation given at the Inter-American Division Seminar in August of 2014

Moha Computer Services Limited: A Fraud Case, Srinivasan Ragothaman

Faculty Publications

This article describes the implementation of a “Fraud case study” in an undergraduate auditing class. The author developed an instructional case based on the financial statement fraud that occurred at Satyam Computer Services Limited (Satyam) in India. Satyam is the largest corporate fraud ($1.5 billion) in India that came to light in 2009. Ironically, Satyam in Sanskrit means “truth”. This teaching case exposes students to several auditing-related concepts: 1) corporate governance issues; 2) financial statement fraud; 3) fraud auditing (SAS No. 99); 4) ethical reasoning and utilitarian principles; 5) internal control evaluation (AS 5); and 6) regulation. This case is …

A Review And Evaluation Of Audit Quality Oversight, Srinivasan Ragothaman, Theodore Mock, Rajendra Srivastava

Faculty Publications

As a result of massive financial statement frauds at Enron, WorldCom, Tyco, Sunbeam, Waste Management, Xerox and others, the US Congress enacted the Sarbanes Oxley Act of 2002 (SOX 2002). This Act set up the Public Company Accounting Oversight Board (PCAOB) which regulates the auditing profession in the US. The PCAOB issues auditing standards, inspects audit quality and also has enforcement powers. Following the US lead, nations such as Australia, Canada, and the United Kingdom have set up national statutory bodies to monitor audit quality.

This paper summarizes the work of these national bodies and synthesizes recent reports of these …

A Review And Evaluation Of Audit Quality Oversight, Srinivasan Ragothaman, Theodore J. Mock, Rajendra P. Srivastava

Faculty Publications

As a result of massive financial statement frauds at Enron, WorldCom, Tyco, Sunbeam, Waste Management, Xerox and others, the US Congress enacted the Sarbanes Oxley Act of 2002 (SOX 2002). This Act sets up the Public Company Accounting Oversight Board (PCAOB) which regulates the auditing profession in the US. The PCAOB issues auditing standards, inspects audit quality and also has enforcement powers. Following the US lead, nations, such as, Australia, Canada, and the United Kingdom have set up national statutory bodies to monitor audit quality. This paper summarises the work of these national bodies and synthesises recent reports of these …

Can Universities Encourage Students Continued Motivation For Knowledge Sharing And How Can This Help Organizations?, Nikki Shoemaker

Faculty Publications

Both practitioners and researchers recognize the increasing importance of knowledge sharing in organizations (Bock, Zmud, Kim, & Lee, 2005; Vera-Muz, Ho, & Chow, 2006). Knowledge sharing influences a firm's knowledge creation, organizational learning, performance achievement, growth, and competitive advantage (Bartol & Srivastava, 2002; Bock & Kim, 2002; Vera-Muz et al., 2006). However, an individual's natural tendency is to hoard knowledge rather than to share knowledge (Davenport, 1997; Ruggles, 1998). So, how can knowledge sharing be encouraged?

Extrinsic rewards are believed to effectively motivate desired behaviors (Bartol & Locke, 2000). Under certain environmental conditions, extrinsic rewards are also believed to develop …

Recognizing Intellectual Capital As An Asset, Mary Fischer, Treba Marsh

Faculty Publications

The revised definition of an asset by the FASB and GASB gives way to the recognition of the fair value of another off-balance sheet value. Interest in recognizing intellectual capital as an asset of the organization has grown out of dissatisfaction with traditional financial accounting and reporting directed toward manufacturing, trading of goods, and service activities which ignore the organizational asset values based on knowledge, expertise and technology. The growing interest in intellectual capital (IC) and knowledge management reflects an awareness of the need for identification, utilization, and measurement of an organizations most valuable asset. This paper identifies the importance …