Contemporary Accounting Research最新文献

Fatigue and burnout are root causes of audit quality issues and turnover. Leveraging the job demands-resources theory, we investigate whether two mechanisms can reduce accountants' fatigue and, in turn, improve audit quality. We conduct a field study of public accountants during both normal and busy season work periods, collecting bi-daily logs to examine whether the use of microbreaks (i.e., brief respite activities) as a job crafting mechanism and/or the receipt of supervisory support as a job resource lessen end-of-day fatigue. We posit and find that engaging in microbreaks is associated with reduced end-of-day fatigue within busy season. Similarly, we posit and find that higher levels of daily supervisory support during busy season are associated with lower end-of-day fatigue. However, neither of these mechanisms is associated with lower end-of-day fatigue during normal work periods. Our results also indicate that these two mechanisms function as complements during busy season, with either one significantly reducing end-of-day fatigue, but both together having an interactive effect. Further, end-of-day fatigue during busy season reduces sleep quality, which increases accountants' fatigue the following morning. In a follow-up experiment, we consistently find evidence that a 1-min microbreak reduces fatigue and that this reduction directly translates into improved error detection.

Leadership is considered a core competency for auditors. This study examines how auditors' leadership ability affects their labor market outcomes and audit firm performance. Using Swedish military data on qualified auditors (CPAs), we first show that auditors' leadership ability, measured at around age 18, is a strong predictor of their income and career success. However, our results also suggest that the audit labor market compensates for auditors' leadership ability at a much later stage than the general labor market. Second, we examine whether the value of leadership ability derives from higher-quality auditing, commercial performance, or both. We find strong evidence that leadership ability enhances auditors' commercial performance and some evidence on leadership ability being associated with higher audit quality. Third, at the audit firm level, we find that auditors' leadership ability significantly benefits audit firm performance measured as client portfolio size and audit firm profitability. Finally, we investigate leadership talent attraction and retention in the auditing profession. We find that the auditing profession attracts better leadership talent than the general labor market. Although nearly a quarter of CPAs leave the profession over the sample period, there is no significant difference in leadership ability between those who stay and those who leave. Overall, our results have important practical implications for audit firms' talent management.

This study examines whether PCAOB inspection reports are useful for signaling the risk of misstatements in future periods and the extent to which different types of audit deficiencies predict future misstatements. We find that, after the inspection report is issued, PCAOB-identified audit deficiencies are positively associated with future misstatements for the audit firm's entire client portfolio. When we examine different types of deficiencies, we find that an auditor's failure to understand the client's accounting procedures or policies is the most detrimental type of deficiency for future reporting quality. We also examine the deficiency types for Big 4 versus non–Big 4 firms separately. The results show that an auditor's failure to understand the client's accounting procedures or policies is the only deficiency type that is positively associated with future misstatements for Big 4 firms. For non–Big 4 firms, however, future misstatements are predicted by an auditor's failure to understand the client's accounting procedures or policies, inadequate substantive testing, and inadequate going-concern assessments. Our study has important implications given the concerns raised by auditors regarding the usefulness of PCAOB inspections.

This paper examines whether the sensitivity of local government credit ratings to external signals about the local economy varies with the quality of the governments' financial reports. We find the credit ratings of local governments that are required to comply with GAAP are less sensitive to changes in local home values than similarly affected governments that are not required to comply with GAAP. Further, we show that GAAP's moderating role increased after Governmental Accounting Standards Board (GASB) 34 substantially improved the quality of GAAP-compliant governments' financial reports, which helps to attribute the main findings to reporting quality. To understand the mechanism, we study positive and negative economic signals separately. The results are pronounced when the change in home values is negative, consistent with reporting quality decreasing the rating agency's uncertainty about local governments' preexisting likelihood of default. We conclude that credit rating agencies are less sensitive to local economic signals when the local government's financial reports are of higher quality.

Deferred compensation is often proposed as an instrument to prevent managerial myopia. However, empirical studies show that its practical use is limited when it comes to managerial retirement. We study the optimal design of accounting-based deferred compensation for retiring managers. While deferred compensation is useful in establishing long-term incentives, it causes contracting frictions in subsequent periods. Deferred bonuses of retiring managers imply inefficiently weak incentives for incoming managers. This down-scaling effect renders deferred compensation less useful in providing long-term incentives. We also find that the down-scaling effect has implications for the desirability of accounting timeliness—that is, the timely recognition of future cash flows in current accounting earnings—from a stewardship perspective. If managers' long-term actions are sufficiently important, higher timeliness can cause more myopic managerial incentives.

We examine how progressive individual tax rates affect risk-taking by pass-through businesses (PTBs). PTBs generate over 60% of US business income and make up roughly 95% of business tax returns, yet there is limited research on how progressive tax rates affect project selection. We study PTBs using the setting of thoroughbred racing and examine how progressive tax rates affect the decision to enter a risky stakes race or a less risky allowance race. This setting provides a unique opportunity to observe the choice between two mutually exclusive projects that differ only in expected payoffs and risk. Using a difference-in-differences design surrounding the reduction in progressivity under the Tax Cuts and Jobs Act, we find that investment in stakes races increases in the United States relative to Canada. We find further evidence of a negative relation between progressive tax rates and risk-taking using a plausibly exogenous shock in progressivity in California and exploiting cross-sectional variation in the progressivity of state tax rates. Overall, our findings should be of interest to policy-makers considering changes to progressive rates. Results indicate that increases to progressive tax rates may discourage risk-taking by the small businesses that drive economic growth.

Most fraud research in accounting has focused on controls rather than offenders' subjective experience, meaning that our understanding of motive in fraud (defined as linguistic devices employed to justify, interpret, or excuse actions) remains underexplored. This is particularly the case for employee fraud, which has been largely neglected relative to top management fraud or financial statement fraud. To provide a richer understanding of how fraud offenders make sense of their offending, we interviewed 30 serious employee fraud offenders to better investigate their typal vocabularies of motive. We focus on holistic narrative accounts to provide insights into the common justifications and excuses presented by employee fraud offenders. We develop a taxonomy of narrative constructions based on the explanatory locus of the accounts offered by offenders. We identify three common justifications, (1) inconsequentiality motives, (2) permission motives, and (3) unfair treatment motives, and three common excuses, (4) personal crisis motives, (5) addiction motives, and (6) appeasement motives. We draw implications for researching fraud, organizational control, and ethics in accounting education.

We examine whether the change in earnings announcement textual tone, aggregated across individual publicly traded firms, helps predict gross domestic product (GDP) growth. The literature finds that changes in aggregate accounting earnings do help predict GDP growth, but only when aggregate earnings changes are negative. Because conservative accounting rules limit managers' ability to communicate positive news promptly, we examine the tone of quarterly corporate earnings announcements as a possible source of timely positive information provided by firms. We find that the change in aggregate tone in the earnings announcements from the same quarter in the previous year predicts one-quarter-ahead GDP growth, but only when the change is positive. Our study contributes to the literature by investigating the relation between aggregate corporate disclosure tone and macroeconomic outcomes.

We examine whether a firm's corporate social responsibility (CSR) actions that benefit external parties can cause the firm's employees to reduce their effort. We expect employees will reduce their effort in response to their firm's external CSR actions when they perceive that they are treated poorly by the firm and that the firm's external CSR actions use resources that could have been readily transferred toward improving employee treatment. We expect that, when employees hold both of these perceptions, they will react negatively to the firm's CSR actions due to heightened feelings of unfairness. Results support our expectations and theory. We find that employees respond negatively to CSR only when they perceive that they are treated poorly by their firm and that CSR uses transferable resources. Further, we find these effects are driven by employees' perceptions of the fairness of their firm's actions toward employees. Our study suggests that firms should consider how employees perceive their treatment by the firm and the transferability of the resources used for CSR actions that benefit external parties.

We examine how public enforcement and private enforcement interact to contain self-dealing activities in emerging markets. Using data from China, we find that firms receiving comment letters concerning related party transactions (RPTs) from stock exchanges significantly reduce their RPTs in subsequent years. We further find that (1) the subsequent reduction in RPTs is more pronounced when independent directors have higher career or reputation concerns and (2) independent directors are more likely to dissent or resign if their firms do not significantly reduce RPTs after receiving RPT comment letters, especially if they have high reputation concerns. Our study sheds light on a within-firm mechanism through which public enforcement takes effect. Our empirical findings also illustrate how “sunshine enforcement”—maintaining timely transparency of the enforcement process—can significantly enhance the effectiveness of regulatory programs.