SUMMARY: We examine the joint effects of reporting threshold (more than remote versus reasonably possible) and type of control deficiency (entity level versus account specific) as described in the adverse report on internal controls on equity analysts' evaluation of the reliability of a company's future financial statements. We hypothesize that equity analysts interpret a “more than remote” threshold to mean a significantly lower likelihood than a “reasonable possibility” threshold. We also hypothesize that when the reporting threshold is more than remote, equity analysts who evaluate an entity level material weakness will indicate a higher likelihood of future material misstatements than those who evaluate an account specific material weakness. However, when the reporting threshold is reasonably possible, equity analysts will assess the same likelihood of future misstatements for both types of material weakness. The results from an experiment that employed 65 equity analysts support our hypotheses. Taken...
{"title":"The Effect of Change in the Reporting Threshold and Type of Control Deficiency on Equity Analysts’ Evaluation of the Reliability of Future Financial Statements","authors":"S. Asare, A. Wright","doi":"10.2308/AJPT-10237","DOIUrl":"https://doi.org/10.2308/AJPT-10237","url":null,"abstract":"SUMMARY: We examine the joint effects of reporting threshold (more than remote versus reasonably possible) and type of control deficiency (entity level versus account specific) as described in the adverse report on internal controls on equity analysts' evaluation of the reliability of a company's future financial statements. We hypothesize that equity analysts interpret a “more than remote” threshold to mean a significantly lower likelihood than a “reasonable possibility” threshold. We also hypothesize that when the reporting threshold is more than remote, equity analysts who evaluate an entity level material weakness will indicate a higher likelihood of future material misstatements than those who evaluate an account specific material weakness. However, when the reporting threshold is reasonably possible, equity analysts will assess the same likelihood of future misstatements for both types of material weakness. The results from an experiment that employed 65 equity analysts support our hypotheses. Taken...","PeriodicalId":307321,"journal":{"name":"D'Amore-McKim: Accounting (Topic)","volume":"124 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-11-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127138450","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
J. Bedard, Rani Hoitash, Udi Hoitash, Kimberly D. Westermann
SUMMARY: This paper investigates remediation of Sarbanes-Oxley Section 404 material weaknesses (MWs). Prior research examines full remediation of all MWs or broad categories thereof. We build on these studies by investigating remediation of specific types of MW, thus measuring progress in improving controls made by companies that have not fully remediated all problems. Specifically, we investigate whether specific MW types differ in remediation likelihood and in the association of remediation with earnings quality. Results show that remediation rates of specific MW types vary, and that remediation of specific types is differentially associated with availability of company resources and corporate governance quality. We also find that remediation of some MW types is significantly associated with changes in abnormal accruals (e.g., entity-level problems in reconciliation and information technology, along with account-specific problems in revenue and tax). Finally, results show that problems remaining unremed...
{"title":"Material Weakness Remediation and Earnings Quality: A Detailed Examination by Type of Control Deficiency","authors":"J. Bedard, Rani Hoitash, Udi Hoitash, Kimberly D. Westermann","doi":"10.2308/AJPT-10190","DOIUrl":"https://doi.org/10.2308/AJPT-10190","url":null,"abstract":"SUMMARY: This paper investigates remediation of Sarbanes-Oxley Section 404 material weaknesses (MWs). Prior research examines full remediation of all MWs or broad categories thereof. We build on these studies by investigating remediation of specific types of MW, thus measuring progress in improving controls made by companies that have not fully remediated all problems. Specifically, we investigate whether specific MW types differ in remediation likelihood and in the association of remediation with earnings quality. Results show that remediation rates of specific MW types vary, and that remediation of specific types is differentially associated with availability of company resources and corporate governance quality. We also find that remediation of some MW types is significantly associated with changes in abnormal accruals (e.g., entity-level problems in reconciliation and information technology, along with account-specific problems in revenue and tax). Finally, results show that problems remaining unremed...","PeriodicalId":307321,"journal":{"name":"D'Amore-McKim: Accounting (Topic)","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-06-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125696934","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In an environment where individual productivity can be increased through efforts directed at a conventional task approach and more efficient task approaches that can be identified through unconventional thinking, we examine the effects of productivity-target difficulty and pay contingent on meeting and beating this target. We argue that while challenging targets and performance-based pay may hinder the discovery of production efficiencies, they can motivate high productive effort (i.e., motivate individuals to work harder and more productively using either the conventional task approach or more efficient task approaches when discovered). Results of a laboratory experiment support our predictions. Individuals both assigned an easy productivity target and paid a fixed wage identify a greater number of production efficiencies than those with either challenging targets or performance-based pay. However, individuals with challenging targets and/or performance-based pay have higher productivity per production efficiency discovered suggesting these control tools better motivate productive effort. Collectively, our results suggest that the ultimate effectiveness of these control tools will likely hinge on the importance of promoting the discovery of production efficiencies relative to motivating productive effort. In doing so, our results provide a better understanding of conflicting prescriptions from the practitioner literature and business press.
{"title":"Productivity-Target Difficulty, Performance-Based Pay and Outside-the-Box Thinking","authors":"Alan Webb, Michael G. Williamson, Y. Zhang","doi":"10.2139/ssrn.1656394","DOIUrl":"https://doi.org/10.2139/ssrn.1656394","url":null,"abstract":"In an environment where individual productivity can be increased through efforts directed at a conventional task approach and more efficient task approaches that can be identified through unconventional thinking, we examine the effects of productivity-target difficulty and pay contingent on meeting and beating this target. We argue that while challenging targets and performance-based pay may hinder the discovery of production efficiencies, they can motivate high productive effort (i.e., motivate individuals to work harder and more productively using either the conventional task approach or more efficient task approaches when discovered). Results of a laboratory experiment support our predictions. Individuals both assigned an easy productivity target and paid a fixed wage identify a greater number of production efficiencies than those with either challenging targets or performance-based pay. However, individuals with challenging targets and/or performance-based pay have higher productivity per production efficiency discovered suggesting these control tools better motivate productive effort. Collectively, our results suggest that the ultimate effectiveness of these control tools will likely hinge on the importance of promoting the discovery of production efficiencies relative to motivating productive effort. In doing so, our results provide a better understanding of conflicting prescriptions from the practitioner literature and business press.","PeriodicalId":307321,"journal":{"name":"D'Amore-McKim: Accounting (Topic)","volume":"180 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132489999","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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