Pub Date : 2022-02-16DOI: 10.2308/horizons-2021-117
Shana M. Clor-Proell, Kathryn Kadous, Chad A. Proell
PCAOB AS1201 mandates that audit supervisors encourage auditors to raise critical issues and concerns to their attention. However, audit supervisors do not receive specific guidance on how to encourage upward communication. This may contribute to the AS1201 compliance issues suggested by research and PCAOB enforcement actions. We provide specific examples of supervisor behaviors that enhance and harm upward communication, thereby improving audit supervisors’ ability to comply with PCAOB AS1201. To do so, we report qualitative data from audit interns describing instances in which they chose to either speak up or not speak up about potential audit issues they encountered in the field. The instances illustrate the types of issues that interns encounter and reveal the role of supervisor behavior in influencing interns’ decisions to speak up.
{"title":"Do as I Say: A Look at the Supervisor Behaviors that Encourage Upward Communication on Audit Teams","authors":"Shana M. Clor-Proell, Kathryn Kadous, Chad A. Proell","doi":"10.2308/horizons-2021-117","DOIUrl":"https://doi.org/10.2308/horizons-2021-117","url":null,"abstract":"PCAOB AS1201 mandates that audit supervisors encourage auditors to raise critical issues and concerns to their attention. However, audit supervisors do not receive specific guidance on how to encourage upward communication. This may contribute to the AS1201 compliance issues suggested by research and PCAOB enforcement actions. We provide specific examples of supervisor behaviors that enhance and harm upward communication, thereby improving audit supervisors’ ability to comply with PCAOB AS1201. To do so, we report qualitative data from audit interns describing instances in which they chose to either speak up or not speak up about potential audit issues they encountered in the field. The instances illustrate the types of issues that interns encounter and reveal the role of supervisor behavior in influencing interns’ decisions to speak up.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2022-02-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47129968","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-02-03DOI: 10.2308/horizons-2021-027
Lazarus Elad Fotoh, J. Lorentzon
This study examines how a paradigm shift from traditional to digital audits could affect the audit expectation gap. It uncovers possible new areas of the expectation gap and threats and challenges resulting from this paradigm shift. The findings suggest that audit digitalization will result in the audit profession transitioning from the defensive approach of educating users on auditors’ duties to a constructive approach of using digital tools to perform some of the duties that users expect of auditors. Specifically, digital technologies have the potential to enhance internal controls and facilitate fraud prevention and detection, thus narrowing the expectation gap in relation to these critical issues. It may further accelerate the elimination of future challenges and threats and the narrowing of future expectation gaps. The potential benefits of switching to the constructive approach are lower costs for audit firms, enhanced audit quality, and improved client perceptions of auditors.
{"title":"Audit digitalization and its consequences on the audit expectation gap: A critical perspective","authors":"Lazarus Elad Fotoh, J. Lorentzon","doi":"10.2308/horizons-2021-027","DOIUrl":"https://doi.org/10.2308/horizons-2021-027","url":null,"abstract":"\u0000 This study examines how a paradigm shift from traditional to digital audits could affect the audit expectation gap. It uncovers possible new areas of the expectation gap and threats and challenges resulting from this paradigm shift. The findings suggest that audit digitalization will result in the audit profession transitioning from the defensive approach of educating users on auditors’ duties to a constructive approach of using digital tools to perform some of the duties that users expect of auditors. Specifically, digital technologies have the potential to enhance internal controls and facilitate fraud prevention and detection, thus narrowing the expectation gap in relation to these critical issues. It may further accelerate the elimination of future challenges and threats and the narrowing of future expectation gaps. The potential benefits of switching to the constructive approach are lower costs for audit firms, enhanced audit quality, and improved client perceptions of auditors.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2022-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48421188","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-01-21DOI: 10.2308/horizons-2020-110
A. B. Josefy, Lynn Rees, Senyo Tse
Prior research consistently reports stronger stock price responses to bad news management guidance than to good news guidance. Based on this result, several studies use the direction of guidance as a proxy for its credibility. We propose that managers opportunistically issue some small bad news guidance for the purpose of reducing earnings expectations to beatable levels. We expect investors to view small bad news guidance as less credible than small good news guidance. We find that investors respond less to small bad news guidance than to similar magnitudes of good news guidance. We show that investor skepticism is justified because small bad news guidance is generally less accurate than the prevailing consensus analyst forecast, whereas other guidance is typically more accurate than the prevailing consensus analyst forecast. Furthermore, the likelihood that bad news guidance is less accurate than the prevailing analyst forecast has increased since the mid-1990s.
{"title":"Investor Response to Bad News Versus Good News Management Earnings Guidance","authors":"A. B. Josefy, Lynn Rees, Senyo Tse","doi":"10.2308/horizons-2020-110","DOIUrl":"https://doi.org/10.2308/horizons-2020-110","url":null,"abstract":"Prior research consistently reports stronger stock price responses to bad news management guidance than to good news guidance. Based on this result, several studies use the direction of guidance as a proxy for its credibility. We propose that managers opportunistically issue some small bad news guidance for the purpose of reducing earnings expectations to beatable levels. We expect investors to view small bad news guidance as less credible than small good news guidance. We find that investors respond less to small bad news guidance than to similar magnitudes of good news guidance. We show that investor skepticism is justified because small bad news guidance is generally less accurate than the prevailing consensus analyst forecast, whereas other guidance is typically more accurate than the prevailing consensus analyst forecast. Furthermore, the likelihood that bad news guidance is less accurate than the prevailing analyst forecast has increased since the mid-1990s.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2022-01-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44090413","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-01-13DOI: 10.2308/horizons-2020-118
J. Cross, Robyn A. Moroney, Soon‐Yeow Phang
Motivated by regulator concerns that auditors do not always demonstrate sufficient professional skepticism (hereafter skepticism); we consider whether a brief mindfulness intervention can assist. Research has demonstrated that mindfulness interventions help people focus on tasks in a range of settings. We draw on this research to predict, and find, that when novice auditors undertake a mindfulness intervention, they demonstrate greater skepticism than other novice auditors. This exploratory study provides preliminary evidence on an accessible intervention that can encourage greater skepticism.
{"title":"Is it all in the Mind(fulness)? An Exploratory Study Assessing the Impact of Mindfulness on Professional Skepticism","authors":"J. Cross, Robyn A. Moroney, Soon‐Yeow Phang","doi":"10.2308/horizons-2020-118","DOIUrl":"https://doi.org/10.2308/horizons-2020-118","url":null,"abstract":"Motivated by regulator concerns that auditors do not always demonstrate sufficient professional skepticism (hereafter skepticism); we consider whether a brief mindfulness intervention can assist. Research has demonstrated that mindfulness interventions help people focus on tasks in a range of settings. We draw on this research to predict, and find, that when novice auditors undertake a mindfulness intervention, they demonstrate greater skepticism than other novice auditors. This exploratory study provides preliminary evidence on an accessible intervention that can encourage greater skepticism.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2022-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46813604","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-09DOI: 10.2308/horizons-2020-023
Xin Luo, T. Wang, Liu Yang, Xinlei Zhao, Yiyang Zhang
In June 2018, the SEC adopted Inline eXtensible Business Reporting Language (iXBRL), which embeds XBRL data into HTML-formatted annual reports to improve the accessibility and usefulness of the information disclosures to investors. This study assesses the effectiveness of iXBRL by examining its impact on informational efficiency and information asymmetry. Using a sample that includes iXBRL voluntary adopters before 2019, we find that iXBRL adoption lowers stock return drift and facilitates information being impounded into firm stock prices following the filing of annual reports. We also find that unlike XBRL, iXBRL reduces information asymmetry in the long run. These findings are consistent with the SEC’s intention of adopting iXBRL to combine human-readable and machine-readable information. Our study provides initial evidence on the effectiveness of iXBRL in communicating information to the external users of annual reports.
{"title":"Initial Evidence on the Market Impact of the iXBRL Adoption","authors":"Xin Luo, T. Wang, Liu Yang, Xinlei Zhao, Yiyang Zhang","doi":"10.2308/horizons-2020-023","DOIUrl":"https://doi.org/10.2308/horizons-2020-023","url":null,"abstract":"In June 2018, the SEC adopted Inline eXtensible Business Reporting Language (iXBRL), which embeds XBRL data into HTML-formatted annual reports to improve the accessibility and usefulness of the information disclosures to investors. This study assesses the effectiveness of iXBRL by examining its impact on informational efficiency and information asymmetry. Using a sample that includes iXBRL voluntary adopters before 2019, we find that iXBRL adoption lowers stock return drift and facilitates information being impounded into firm stock prices following the filing of annual reports. We also find that unlike XBRL, iXBRL reduces information asymmetry in the long run. These findings are consistent with the SEC’s intention of adopting iXBRL to combine human-readable and machine-readable information. Our study provides initial evidence on the effectiveness of iXBRL in communicating information to the external users of annual reports.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46961659","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-22DOI: 10.2308/horizons-2019-515
Liangliang Jiang,Jeffrey A. Pittman,Walid Saffar
We study how policy uncertainty influences textual disclosure in the U.S. from 1996 to 2015. Consistent with incentives for voluntary disclosure, we find that policy uncertainty increases textual disclosure quantity, as evident in disclosure length, but lowers textual readability and increases the tone of uncertainty and negativity. We also document that the negative impact on readability subsides when firms are subject to tough external monitoring. Finally, we provide evidence implying that investors perceive such disclosure to be valuable, as evident in cheaper equity financing costs under economic policy uncertainty.
{"title":"Policy Uncertainty and Textual Disclosure","authors":"Liangliang Jiang,Jeffrey A. Pittman,Walid Saffar","doi":"10.2308/horizons-2019-515","DOIUrl":"https://doi.org/10.2308/horizons-2019-515","url":null,"abstract":"We study how policy uncertainty influences textual disclosure in the U.S. from 1996 to 2015. Consistent with incentives for voluntary disclosure, we find that policy uncertainty increases textual disclosure quantity, as evident in disclosure length, but lowers textual readability and increases the tone of uncertainty and negativity. We also document that the negative impact on readability subsides when firms are subject to tough external monitoring. Finally, we provide evidence implying that investors perceive such disclosure to be valuable, as evident in cheaper equity financing costs under economic policy uncertainty.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":"8 1","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-11-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138536941","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-19DOI: 10.2308/horizons-2020-097
J. Park, Norman Massel
We study the costs and benefits to the issuer of engaging an initial public offering (IPO) auditor specialist. We measure IPO auditor specialization and then find that IPO specialist auditors earn significant fee premiums relative to IPO auditors without specialization and that clients with an IPO specialist auditor exhibit lower levels of underpricing relative to clients without an IPO specialist auditor. We also demonstrate that IPO specialist auditors provide higher quality audits than IPO auditors without IPO audit specialization, finding that their IPO clients have a lower likelihood of financial misstatement and have lower discretionary accruals. Collectively, our results have important implications for the auditing profession and capital markets because we demonstrate empirical evidence of the costs and benefits of engaging IPO specialist auditors.
{"title":"The Pricing of IPO Audit Specialization and Subsequent Issuer Underpricing","authors":"J. Park, Norman Massel","doi":"10.2308/horizons-2020-097","DOIUrl":"https://doi.org/10.2308/horizons-2020-097","url":null,"abstract":"We study the costs and benefits to the issuer of engaging an initial public offering (IPO) auditor specialist. We measure IPO auditor specialization and then find that IPO specialist auditors earn significant fee premiums relative to IPO auditors without specialization and that clients with an IPO specialist auditor exhibit lower levels of underpricing relative to clients without an IPO specialist auditor. We also demonstrate that IPO specialist auditors provide higher quality audits than IPO auditors without IPO audit specialization, finding that their IPO clients have a lower likelihood of financial misstatement and have lower discretionary accruals. Collectively, our results have important implications for the auditing profession and capital markets because we demonstrate empirical evidence of the costs and benefits of engaging IPO specialist auditors.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-11-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46814904","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-19DOI: 10.2308/horizons-2020-032
D. K. Holderness, K. Olsen, Todd A. Thornock, Edward C. Tomlinson
Psychological entitlement is a sense that one deserves more than others, and is correlated with a host of negative workplace behaviors. Because entitled individuals have a strong desire for the approval of others, we examine whether increasing the expectation of being monitored can limit some of these negative behaviors. We find that when the expectation of being monitored is low, psychological entitlement is associated with lower performance and higher misreporting. In contrast, when the expectation of being monitored is high, not only are these behaviors reduced, but performance increases and misreporting decreases for entitled individuals. Our results suggest that expectations of performance monitoring can be used to improve workplace outcomes for entitled employees.
{"title":"Will Someone Be Checking My Work? The Effect of Psychological Entitlement and the Expectation of Being Monitored on Task Performance and Misreporting","authors":"D. K. Holderness, K. Olsen, Todd A. Thornock, Edward C. Tomlinson","doi":"10.2308/horizons-2020-032","DOIUrl":"https://doi.org/10.2308/horizons-2020-032","url":null,"abstract":"Psychological entitlement is a sense that one deserves more than others, and is correlated with a host of negative workplace behaviors. Because entitled individuals have a strong desire for the approval of others, we examine whether increasing the expectation of being monitored can limit some of these negative behaviors. We find that when the expectation of being monitored is low, psychological entitlement is associated with lower performance and higher misreporting. In contrast, when the expectation of being monitored is high, not only are these behaviors reduced, but performance increases and misreporting decreases for entitled individuals. Our results suggest that expectations of performance monitoring can be used to improve workplace outcomes for entitled employees.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-11-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43748874","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jayanth K. Krishnan, Sang Mook Lee, Myungsoo Son, Hakjoon Song
Using a measure of social capital provided by the Northeast Regional Center for Rural Development, we document that, after controlling for auditor effort, firms headquartered in US counties with higher social capital are less likely to have ineffective internal control over financial reporting than those located in regions with lower social capital. This negative association between local social capital and ineffective internal controls holds when other forms of external monitoring are weak. We also find that the association is driven by ineffective internal control arising from entity-level, but not from account-specific, material weaknesses. Overall, we contribute to the literature that links firms' social environment with financial reporting quality.
{"title":"Social Capital and Internal Control Material Weaknesses","authors":"Jayanth K. Krishnan, Sang Mook Lee, Myungsoo Son, Hakjoon Song","doi":"10.2308/horizons-16-153","DOIUrl":"https://doi.org/10.2308/horizons-16-153","url":null,"abstract":"Using a measure of social capital provided by the Northeast Regional Center for Rural Development, we document that, after controlling for auditor effort, firms headquartered in US counties with higher social capital are less likely to have ineffective internal control over financial reporting than those located in regions with lower social capital. This negative association between local social capital and ineffective internal controls holds when other forms of external monitoring are weak. We also find that the association is driven by ineffective internal control arising from entity-level, but not from account-specific, material weaknesses. Overall, we contribute to the literature that links firms' social environment with financial reporting quality.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-11-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43715782","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Deborah Yvonne Nagel, Stephan Fuhrmann, Raphael Tietmeyer, Thomas W. Guenther
This paper evaluates the associations between credit default swap (CDS) spreads and risk disclosure characteristics, especially the expected qualitative and the expected quantitative impacts of risks on companies' future performance and information on risk management. We find that CDS investors can benefit from information on expected risk impacts and from information on risk management, which is important for the current discussion of the Securities and Exchange Commission (SEC) on risk disclosure regulation. However, for companies, the disclosure of such information can be either beneficial or costly, depending on the initial risk perception of CDS investors prior to the publication of risk disclosures and on the disclosed risk factors. Furthermore, we expand the literature by automatically measuring the mentioned risk disclosure characteristics using dictionary-based approaches.
{"title":"The Perception of Risk Disclosure Characteristics on the Credit Default Swap Market - An Automated Analysis","authors":"Deborah Yvonne Nagel, Stephan Fuhrmann, Raphael Tietmeyer, Thomas W. Guenther","doi":"10.2308/horizons-19-058","DOIUrl":"https://doi.org/10.2308/horizons-19-058","url":null,"abstract":"This paper evaluates the associations between credit default swap (CDS) spreads and risk disclosure characteristics, especially the expected qualitative and the expected quantitative impacts of risks on companies' future performance and information on risk management. We find that CDS investors can benefit from information on expected risk impacts and from information on risk management, which is important for the current discussion of the Securities and Exchange Commission (SEC) on risk disclosure regulation. However, for companies, the disclosure of such information can be either beneficial or costly, depending on the initial risk perception of CDS investors prior to the publication of risk disclosures and on the disclosed risk factors. Furthermore, we expand the literature by automatically measuring the mentioned risk disclosure characteristics using dictionary-based approaches.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-11-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43004312","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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