Contemporary Accounting Research最新文献

Over the past decade, the audit profession has significantly increased its use of non-equity partners for private (non-listed) company audits. Such partners lead audit engagements and sign audit reports but do not share in the partnership's profits. Non-equity partner positions were introduced in response to increasing workloads and to retain talented individuals unsuited to or uninterested in equity partnership, either temporarily or permanently. Using data from Big 4 private company audits during the period 2008–2017, our analyses show that equity incentives affect auditors' reporting behavior and their clients' financial reporting quality. Non-equity partners are less likely to issue going-concern opinions to their financially distressed clients, their reporting is less accurate (i.e., more Type II errors), their reporting is less conservative, and their clients' financial reporting is of lower quality (i.e., more frequent reporting of small earnings increases and more tax restatements). We also find that equity incentives mitigate some of the negative effects of fee-based compensation on auditors' reporting behavior. Moreover, our findings suggest that incentives arising from ownership, rather than partners' innate differences or client differences, drive these associations.

Accounting Standards Update (ASU) 2016-01 requires that unrealized gains and losses on equity investments (equity-URGL) previously recognized in other comprehensive income now be included in net income. Using a sample of public insurers, we examine how this accounting standard change influences managerial investment decisions, with a particular focus on the moderating effects of compensation contracting and financial reporting practices. We find that prior to ASU 2016-01, equity-URGL was positively associated with CEO compensation, but this association dissipates in the post-adoption period, when equity-URGL is more frequently excluded from CEO performance metrics. Despite purported concerns about increased earnings volatility due to the new reporting requirements, highly affected insurers do not significantly reduce the size or risk of their equity investment portfolios following ASU 2016-01, particularly when compensation metrics exclude equity-URGL. We also find that equity-URGL is more frequently excluded from non-GAAP earnings post-adoption, suggesting that managers adjust financial reporting practices as a response to the change. Moreover, highly affected insurers maintain the size and risk of their equity portfolios when equity-URGL is excluded from non-GAAP earnings. These findings suggest that managerial responses to ASU 2016-01 are influenced by a balance between incentive structures and the costs associated with adjusting investment strategies.

The mandatory switch from the incurred loss model to the more forward-looking current expected credit loss (CECL) model was originally scheduled to begin in 2020. However, when the COVID-19 pandemic started in early 2020, US regulators made the switch voluntary. Our study investigates how banks' exposure to the pandemic affects their decision to adopt CECL as well as adopting banks' pandemic-era pattern of loan loss provisions. First, consistent with pandemic-driven economic uncertainty reducing banks' willingness to adopt the new model, we find a negative association between banks' pandemic exposure and their CECL adoption. This association is more pronounced for banks with more lending opportunities, more lending competition, and worse loan quality. Second, compared with non-adopters, CECL adopters report more loan loss provisions during the pandemic's early period, and less or even negative loan loss provisions during the late period. The latter scenario reflects a reversal of earlier loan loss reserves and is more pronounced for banks with more exposure to states with a higher level of vaccination, consistent with banks having a more positive economic outlook because of improving pandemic conditions. Overall, our study offers useful insights into the adoption and implementation of accounting standards during periods of economic uncertainty.

Professional skepticism is an essential element of a healthy audit. In this study, we present a framework in which the two elements of professional skepticism—skeptical judgment and skeptical action—differ in that skeptical judgment involves paying attention to audit risks, whereas skeptical action often involves overcoming personal risks. This distinction suggests that the optimal conditions for skeptical judgment may differ from the optimal conditions for converting that judgment to skeptical action. Specifically, interventions that promote vigilance will facilitate judgment because they make potential accounting issues salient, but such a focus will also draw attention to potential adverse consequences of taking action. To test this proposition, we conduct two studies in which we align skeptical judgment and skeptical action with two pairs of distinct and contrasting mindsets to operationalize differential vigilance. Our results suggest a duality in skepticism which has important implications for researchers and practitioners designing interventions to improve audit quality.

This paper examines how a change in disclosure regulation influences investors' information acquisition and trading across multiple markets. We leverage the 2007 elimination of the Form 20-F reconciliation requirement for cross-listed firms that prepare financial statements under IFRS. Using a difference-in-differences research design, we show that investors acquire fewer Form 20-Fs of IFRS-reporting cross-listed firms when these forms are not filed in a timely manner relative to the home-country earnings announcement. We also find an increased acquisition of earnings-specific 6-Ks, indicating a shift in investor attention from delayed and unreconciled 20-Fs to more timely earnings releases in the home country. Furthermore, we find that American Depositary Receipt (ADR) market reactions to local earnings announcements increase after the deregulation, especially for firms with strong home-country institutions. In addition, we find that the deregulation increases return co-movement between the US ADR market and the home-country stock market for IFRS filers' shares. Our results bring novel insights regarding the cross-market impact of the disclosure regulation change.

Using industry restatement contagion as an external negative shock, we study the effectiveness of enterprise risk management (ERM) in mitigating downside risk and enhancing investor confidence. We find that ERM curbs overinvestment and earnings misstatement among firms when other firms in their industry engage in undisclosed misstatements that are subsequently restated. Following the announcements of these industry restatements, peers with ERM experience a smaller increase in implied volatility skewness. These effects are driven by peers with young CEOs, complex segment structures, low prior earnings performance, and in competitive industries. Overall, our findings highlight ERM's role in bolstering investor confidence by effectively managing firms' underlying risks.

In this study, we leverage judgment decomposition and information acquisition theories to develop and test an intervention to improve group auditors' identification of and response to component-level qualitative risk. Improving group auditors' response to qualitative risk is important because (1) group audits are prevalent today and require multiple qualitative risk assessments, (2) auditors have historically overlooked qualitative risks, and (3) prior interventions have failed to improve auditors' response to qualitative risk. In an experiment with 88 audit partners and managers, we find that a hybrid risk assessment approach that combines elements of judgment decomposition and notetaking improves auditors' group audit planning decisions. Specifically, auditors utilizing our hybrid approach are better able to identify and respond to component-level qualitative risks than auditors who use a holistic approach. Importantly, the improvement in qualitative risk response does not come at the expense of auditors' response to quantitative risk.

This study investigates the joint effects of investor status and locus of attribution on investors' judgments of management credibility. We study these effects in the context of an adverse event disclosure. Building on social identity and ultimate attribution error theory, we predict and find that under external attribution, current investors perceive management as more credible than prospective investors do. In contrast, we predict and find that investor status does not affect perceived management credibility under internal attribution. We provide evidence supporting our theory that company identification explains these findings. In addition, we document that the differences in credibility are mainly driven by perceptions of management's trustworthiness, rather than competence. Moreover, our results indicate that these differences in credibility judgments affect earnings expectations, thus inducing disagreement among investors. Our findings have important practical implications, including that company identification can be an asset to companies and that communicating adverse events with an external attribution reduces perceived management credibility for prospective investors.

We hypothesize that managers use their hierarchical role as reviewers of accounting judgments and estimates to manage earnings, which we call indirect earnings management (IEM). Across a series of experiments using highly experienced financial executives as participants, we provide evidence that IEM (1) is likely used by managers to achieve current and future earnings targets, (2) reduces both cognitive dissonance associated with managing earnings and the extent to which managers think that their behaviors constitute earnings management, and (3) is more likely to be used when corporate governance is strong than when corporate governance is weak. The results of this study suggest new directions for future research on earnings management and highlight the important role of the hierarchical structure of the accounting function in efforts to understand how earnings are managed.

Product market advertising, while containing little new information, triggers spikes in investor attention. Using weekly advertising data, we find that sell-side analysts issue optimistic earnings forecasts in response to heavier advertising in the prior week. This effect is not driven by confounding earnings or product news. It is more pronounced for experienced analysts and analysts affiliated with brokerages that rely solely on trading revenues. The optimistic forecast bias intensifies the impact of advertising on investor trades of the underlying stock during the following week, especially on retail buying. Overall, analysts appear to issue optimistic forecasts to exploit retail investor attention spikes induced by advertising.