Advances in Accounting最新文献

On April 28, 2003, ten of the largest investment banks reached an agreement with the Securities and Exchange Commission and other regulatory bodies regarding alleged misconduct of security analysts. This agreement, called the Global Research Analyst Settlement, allocated $460 million to source independent analyst research. Unlike other forms of analyst research, this research was not financed through investment banking or trading commissions and was theoretically “unbiased research”. We compare independent research funded by the Global Settlement to research provided by the same firms that was not funded by the Global Settlement. Research funded by the Global Settlement appears to be of lower quality than non-funded research produced by the same set of firms, suggesting that unbiased research does not necessarily generate higher quality research. More specifically, we find that quality declined in the later years of the Global Settlement period when there was no expectation of future funding for this research, commonly referred to as the horizon effect.

Literature has documented income classification shifting to increase core earnings. There has been little research on whether firms reduce income increasing classification shifting or classification shift to reduce core earnings - classify non-core items as core expenses. Also, research on classification shifting under non-market incentives is limited. We fill these gaps by examining the shifting behavior of oil and gas firms in response to the BP oil spill. The oil spill was an unexpected event that led to regulations and restrictions, as well as adverse publicity. This could have encouraged petroleum firms to suppress core earnings. We show that after the oil spill, (1) the likelihood of petroleum firms' classification shifting to inflate core earnings declines relative to other firms and (2) the likelihood of petroleum companies' shifting to report lower core earnings increases relative to other firms.

Understanding the behavior of chief executive officers (CEOs) enables investors, regulators, and others to better appreciate CEOs' corporate decisions. Among the many aspects that determine CEO behavior are early-life experiences, we examine whether a CEO's exposure to two important events—fatal natural disasters and violent crime—during the individual's formative years is associated with the firm's financial reporting outcomes. We argue that a CEO with early life exposure to fatal natural disasters and violent crime may be over-confident when dealing with risk and is more likely to make riskier decisions. However, this relationship becomes negative when the exposure reaches a certain level, consistent with the CEO becoming risk-averse when making business decisions (Bernile, Bhagwat, & Rau, 2017). Consistently, we report evidence of a U-shaped association between financial reporting quality and both types of early-life exposures. In addition, we find that the link between a CEO's early-life exposures and financial reporting quality is more pronounced in firms with greater incentives to manage earnings.

This study examines the effect of uncertain tax position (UTP) disclosures on analysts' effective tax rate (ETR) forecasts. The Internal Revenue Service (IRS) requires that firms provide detailed information about UTPs reported in their annual 10-K filings on their Schedule UTP form. Schedule UTP applies to federal tax positions for which a corresponding tax reserve has been created for financial reporting purposes. Academics and practitioners have deliberated whether Schedule UTP disclosures could lead to firms altering how they account for their unrecognized tax benefits (UTBs) in financial statements. Overall, we find that UTB additions were originally useful to analysts in forecasting ETRs but became less useful after the implementation of the Schedule UTP form, as it likely reduced the usefulness of information for financial statement users. Our findings contribute to the debate regarding the extent of tax policy overlapping with the generally accepted accounting principles of financial reporting. Following up on a 2018 Treasury Department study that recommended more disclosure on Schedule UTP, the IRS, in December of 2022, finalized additional disclosure requirements to Schedule UTP, These new requirements may further incentivize firms to alter UTB reporting in their financial statements.

This study establishes the informational value of a company's product market competition, derived from qualitative nonfinancial disclosures, in the audit contracting process. Greater product market competition could either serve as means of mitigating agency costs between managers and shareholders or heightening managerial rent-seeking activities and the incentive to distort disclosures. Consequently, greater competition could either increase or decrease audit engagement risk. We find that greater product market competition is associated with greater engagement risk. Auditors respond to the higher risk by assessing greater audit fees. Although auditors respond by charging higher fees and dedicating greater effort to these engagements, we nonetheless find that audit quality is negatively affected by greater competition. Our findings are consistent with the dark side hypothesis of product market competition. Overall, our study provides evidence that company-level competition effects convey valuable information to auditors.

This article provides a discussion of the Hamrick, Schafer, and DeZoort (2023) study published in Advances in Accounting. The discussion first provides an overview of the study and strengths of the article. Constructive commentary follows, centered on understanding the theoretical underpinnings of the study's findings and the measurement of process variables to deepen our understanding of why these findings occurred. Additionally, I encourage expanded research using alternative methodologies to increase external validity of the study's findings. The commentary concludes with a discussion of future research opportunities to extend the study's compelling results, highlighting the importance of expanding our understanding of social stereotypes and gender dynamics in the auditor-client negotiations process.

R&D-intensive firms suffer from high information asymmetry and high proprietary costs and are prone to exhibit bottom-line losses given the unconditional conservative accounting treatment of R&D expenses. We examine how R&D intensity influences the issuance of management earnings forecasts (MEFs) across levels of accounting conservatism, controlling for proprietary costs and other earnings guidance determinants. We provide insights into how managers view the tradeoffs of using MEF disclosures to lower information asymmetry versus the costs of releasing proprietary information to competitors and the loss of reputational capital that could arise from providing inaccurate forecasts. We find that although R&D intensity and conditional conservatism are negatively related to the issuance of MEFs, as shown in prior research, at high levels of research intensity and the accompanying uncertainty about future payoffs, the negative association between conditional conservatism and MEF issuance is mitigated. These findings point to a role for conditional conservatism as a credibility enhancer for managers of R&D intense firms.

The purpose of this study is to investigate how the level of controls testing coordination with the external auditor affects internal auditors' effort. The internal auditor's planned substantive testing audit hours are the measure of effort in this study. Regulators and stakeholder organizations have encouraged more collaboration between external and internal auditors to improve audit efficiency. The effect of external auditor coordination on internal auditors' planned audit hours has important implications for audit efficiency and effectiveness. An experiment is conducted with 112 internal auditors to examine the hypothesized effect. The study uses a 2 $\times$ 2 between-subjects design and manipulates fraud risk and external auditor coordination. Consistent with my prediction, I find that coordination moderates the relationship between fraud risk and planned audit hours. The results illustrate that although high external auditor controls testing coordination decreases internal auditors' planned substantive testing audit hours, internal auditors are more sensitive to responding to fraud risk when external auditor controls testing coordination is high.