Ashley A. Austin, Tina D Carpenter, Margaret H. Christ, C. Nielson
Auditors struggle to respond skeptically to fraud, reducing audit quality. This problem is particularly prevalent during the evidence evaluation phase of the audit, when auditors face the greatest time constraints. Empowerment theory suggests people overcome constraints and produce higher quality work when they feel empowered (i.e., capable of navigating the course of their work). Based on this theory, we develop an intervention that combines a professional skepticism charge code with supervisor support. Using an experiment, we predict and find that when fraud is present during evidence evaluation, auditors with our intervention recognize a greater number of fraud evidence items and identify more procedures that effectively target fraud. However, when fraud is absent, these auditors are, appropriately, no more likely to perform more work than other auditors. This study contributes to theory and practice as our theory-driven intervention improves auditors’ performance in an area where they have been deficient in practice.
{"title":"Empowering Auditors to Pursue Fraud During Evidence Evaluation","authors":"Ashley A. Austin, Tina D Carpenter, Margaret H. Christ, C. Nielson","doi":"10.2139/ssrn.3247783","DOIUrl":"https://doi.org/10.2139/ssrn.3247783","url":null,"abstract":"Auditors struggle to respond skeptically to fraud, reducing audit quality. This problem is particularly prevalent during the evidence evaluation phase of the audit, when auditors face the greatest time constraints. Empowerment theory suggests people overcome constraints and produce higher quality work when they feel empowered (i.e., capable of navigating the course of their work). Based on this theory, we develop an intervention that combines a professional skepticism charge code with supervisor support. Using an experiment, we predict and find that when fraud is present during evidence evaluation, auditors with our intervention recognize a greater number of fraud evidence items and identify more procedures that effectively target fraud. However, when fraud is absent, these auditors are, appropriately, no more likely to perform more work than other auditors. This study contributes to theory and practice as our theory-driven intervention improves auditors’ performance in an area where they have been deficient in practice.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77287691","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}
We investigate whether and how a “critical audit matter” (CAM) disclosure affects managers’ real operating decisions in two contexts (issuing a loan that decreases versus increases the average risk profile of loan portfolios, or choosing to hedge versus speculate on commodity risk). We expect a CAM disclosure increases disclosure costs and implies expanded auditor support for both types of activities; but we expect implied auditor support to be valued more highly for risk-increasing than for risk-decreasing activities. As a result, we predict that a CAM disclosure decreases managers’ risk-decreasing activities (due to increased disclosure costs) more than managers’ risk-increasing activities (as the implied auditor support counteracts the increased disclosure costs). We find evidence consistent with our prediction across multiple experiments. Our study sheds light on unintended consequences of a CAM disclosure and provides insight to relevant parties as the new standard goes into effect.
{"title":"The Effect of Increased Audit Disclosure on Managers’ Real Operating Decisions: Evidence from Disclosing Critical Audit Matters","authors":"Jeremiah W. Bentley, T. Lambert, E. Wang","doi":"10.2139/ssrn.3000978","DOIUrl":"https://doi.org/10.2139/ssrn.3000978","url":null,"abstract":"We investigate whether and how a “critical audit matter” (CAM) disclosure affects managers’ real operating decisions in two contexts (issuing a loan that decreases versus increases the average risk profile of loan portfolios, or choosing to hedge versus speculate on commodity risk). We expect a CAM disclosure increases disclosure costs and implies expanded auditor support for both types of activities; but we expect implied auditor support to be valued more highly for risk-increasing than for risk-decreasing activities. As a result, we predict that a CAM disclosure decreases managers’ risk-decreasing activities (due to increased disclosure costs) more than managers’ risk-increasing activities (as the implied auditor support counteracts the increased disclosure costs). We find evidence consistent with our prediction across multiple experiments. Our study sheds light on unintended consequences of a CAM disclosure and provides insight to relevant parties as the new standard goes into effect.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91163975","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}
This study investigates the association between firm‐level business strategy and the readability of narrative disclosures in annual reports. As business strategy affects the information environment and financial performance of firms, we expect the readability of narrative disclosures to vary with the particular business strategy that a firm pursues. In accord with this expectation, we find that firms with prospector‐type business strategies produce less readable narratives, while those with defender‐type business strategies produce more readable narratives. We also document that the association between strategy and readability is partially mediated by organisational performance, although the mediation effect is rather modest. These findings are robust when subjected to a series of sensitivity tests.
{"title":"Business Strategies and Annual Report Readability","authors":"Ahsan Habib, M. Hasan","doi":"10.1111/acfi.12380","DOIUrl":"https://doi.org/10.1111/acfi.12380","url":null,"abstract":"This study investigates the association between firm‐level business strategy and the readability of narrative disclosures in annual reports. As business strategy affects the information environment and financial performance of firms, we expect the readability of narrative disclosures to vary with the particular business strategy that a firm pursues. In accord with this expectation, we find that firms with prospector‐type business strategies produce less readable narratives, while those with defender‐type business strategies produce more readable narratives. We also document that the association between strategy and readability is partially mediated by organisational performance, although the mediation effect is rather modest. These findings are robust when subjected to a series of sensitivity tests.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88528696","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}
We report on lessons and insights concerning an interview‐based, qualitative research thesis undertaken by an honours year university student in actuarial studies, who had no previous experience with qualitative research. Motivations and the need for research of this nature are provided in depth. Observations are presented on key areas of the research process, from the perspective of both research student and supervisors. This informs future students who may be considering qualitative research, who have not previously engaged in this approach. It also informs supervisors in predominantly quantitative disciplines who may be unfamiliar with some of the nuances of interview‐based approaches.
{"title":"Observations of Supervisors and an Actuarial Research Student on the Qualitative Research Process","authors":"Jiajie Du, Aaron Bruhn, B. Whiting","doi":"10.1111/acfi.12377","DOIUrl":"https://doi.org/10.1111/acfi.12377","url":null,"abstract":"We report on lessons and insights concerning an interview‐based, qualitative research thesis undertaken by an honours year university student in actuarial studies, who had no previous experience with qualitative research. Motivations and the need for research of this nature are provided in depth. Observations are presented on key areas of the research process, from the perspective of both research student and supervisors. This informs future students who may be considering qualitative research, who have not previously engaged in this approach. It also informs supervisors in predominantly quantitative disciplines who may be unfamiliar with some of the nuances of interview‐based approaches.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86068199","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}
Pub Date : 2018-03-21DOI: 10.4324/9781315621876-16
Y. Biondi
Fair value refers to current values as the backbones of accounting measurements. Current value follows the efficient financial market (EFM) hypothesis - which abstracts away from economic realization - as guidance for the financial market investment process through ignorance and hazard. This chapter takes a systemic perspective on the formation of financial market prices over time and circumstances. Our financial system approach relaxes that EFM hypothesis by distinguishing and specifying both (i) the timely provision and treatment of firm-specific information, and (ii) the aggregating market price fixing that assures the ongoing matching between market orders which may depend on the latter information. From this systemic perspective, fair value regimes increase market volatility and market exuberance with inefficient allocative effects, although the correlation of accounting information with the market price series is improved.
{"title":"Fair Value and the Formation of Financial Market Prices Through Ignorance and Hazard","authors":"Y. Biondi","doi":"10.4324/9781315621876-16","DOIUrl":"https://doi.org/10.4324/9781315621876-16","url":null,"abstract":"Fair value refers to current values as the backbones of accounting measurements. Current value follows the efficient financial market (EFM) hypothesis - which abstracts away from economic realization - as guidance for the financial market investment process through ignorance and hazard. This chapter takes a systemic perspective on the formation of financial market prices over time and circumstances. Our financial system approach relaxes that EFM hypothesis by distinguishing and specifying both (i) the timely provision and treatment of firm-specific information, and (ii) the aggregating market price fixing that assures the ongoing matching between market orders which may depend on the latter information. From this systemic perspective, fair value regimes increase market volatility and market exuberance with inefficient allocative effects, although the correlation of accounting information with the market price series is improved.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-03-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87812193","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}
Bali, Cakici, and Whitelaw (2011) document a MAX premium in the U.S. where stocks with the highest maximum daily returns (MAX) underperform stocks with the lowest MAX in the subsequent month. However, the source of this MAX premium is contentious. Fong and Toh (2014) find that the MAX premium exclusively follows high sentiment periods suggesting that it is driven by investor optimism during high sentiment periods. In contrast Cheon and Lee (2017) find that the MAX premium is stronger following low sentiment periods suggesting that it is driven by the attention-grabbing characteristic of high MAX stocks in low sentiment periods. We present evidence from China consistent with the MAX premium being driven by investor optimism during high sentiment periods.
{"title":"Maxing Out in China: Optimism or Attention?","authors":"Muhammad A. Cheema, G. Nartea, Yimei Man","doi":"10.2139/ssrn.3118809","DOIUrl":"https://doi.org/10.2139/ssrn.3118809","url":null,"abstract":"Bali, Cakici, and Whitelaw (2011) document a MAX premium in the U.S. where stocks with the highest maximum daily returns (MAX) underperform stocks with the lowest MAX in the subsequent month. However, the source of this MAX premium is contentious. Fong and Toh (2014) find that the MAX premium exclusively follows high sentiment periods suggesting that it is driven by investor optimism during high sentiment periods. In contrast Cheon and Lee (2017) find that the MAX premium is stronger following low sentiment periods suggesting that it is driven by the attention-grabbing characteristic of high MAX stocks in low sentiment periods. We present evidence from China consistent with the MAX premium being driven by investor optimism during high sentiment periods.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84528600","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}
Purpose This purpose of this paper is to discuss some observations in the forensic accounting-based fraud literature. The authors identify recent advances in the literature and highlight several important issues that are worth noting. Design/methodology/approach The authors use a commentary analysis. Findings The main message of this commentary paper is that fraud is complicated, and fraud complexity can significantly impact the way researchers undertake forensic accounting-based fraud research. Practical implications The practical implication is that forensic accountants and forensic accounting researchers should incorporate into their practice the complexity of fraud regardless of whether they follow an empirical, experimental, exploratory, analytical or critical approach to fraud investigation. Originality/value In contrast to previous studies, this study identifies the most recent issues emerging in fraud literature.
{"title":"Advances and Issues in Fraud Research: A Commentary","authors":"Peterson K. Ozili","doi":"10.2139/ssrn.3132210","DOIUrl":"https://doi.org/10.2139/ssrn.3132210","url":null,"abstract":"\u0000Purpose\u0000This purpose of this paper is to discuss some observations in the forensic accounting-based fraud literature. The authors identify recent advances in the literature and highlight several important issues that are worth noting.\u0000\u0000\u0000Design/methodology/approach\u0000The authors use a commentary analysis.\u0000\u0000\u0000Findings\u0000The main message of this commentary paper is that fraud is complicated, and fraud complexity can significantly impact the way researchers undertake forensic accounting-based fraud research.\u0000\u0000\u0000Practical implications\u0000The practical implication is that forensic accountants and forensic accounting researchers should incorporate into their practice the complexity of fraud regardless of whether they follow an empirical, experimental, exploratory, analytical or critical approach to fraud investigation.\u0000\u0000\u0000Originality/value\u0000In contrast to previous studies, this study identifies the most recent issues emerging in fraud literature.\u0000","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86983421","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}
Pub Date : 2018-02-10DOI: 10.9734/AJEBA/2018/38434
C. Ezeagba, Mary-Fidelis Chidoziem Abiahu
Recently, there has been growing concern about ethical and integrity issues in the accounting and auditing profession in public and private sectors of the economy, based on questionable acts committed by professionals whose certification decision makers rely upon. This study adopted the stewardship theory as a theoretical background to develop an empirical framework for examining the influence of ethical professional standards on financial reporting practices in less developed countries. The result of this study however, shows that there is a low degree of adoption. The most prevalent of these factors are greediness and self-interest of the accountant while the least factor is lack of will to sanction violations of clearly defined ethical codes of conduct. The paper recommends that strong enforcement mechanism including the establishment of peer review procedures and institutional monitoring to regulate the activities of professional accountants and ensure strict enforcement of codes of professional practice.
{"title":"Influence of Professional Ethics and Standards in Less Developed Countries: An Assessment of Professional Accountants in Nigeria","authors":"C. Ezeagba, Mary-Fidelis Chidoziem Abiahu","doi":"10.9734/AJEBA/2018/38434","DOIUrl":"https://doi.org/10.9734/AJEBA/2018/38434","url":null,"abstract":"Recently, there has been growing concern about ethical and integrity issues in the accounting and auditing profession in public and private sectors of the economy, based on questionable acts committed by professionals whose certification decision makers rely upon. This study adopted the stewardship theory as a theoretical background to develop an empirical framework for examining the influence of ethical professional standards on financial reporting practices in less developed countries. The result of this study however, shows that there is a low degree of adoption. The most prevalent of these factors are greediness and self-interest of the accountant while the least factor is lack of will to sanction violations of clearly defined ethical codes of conduct. The paper recommends that strong enforcement mechanism including the establishment of peer review procedures and institutional monitoring to regulate the activities of professional accountants and ensure strict enforcement of codes of professional practice.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-02-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89721681","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}
The paper investigates the link between the information content of independent directors’ re-ports (IDRs) and future firm performance. By conducting sentiment analysis of 23,984 IDRs of the Chinese listed companies from 2004-2012, we find that the tone of IDRs is positively related with future firm performance. We also posit that the tone of IDRs and its association with firm performance depends on director’s incentives to monitor. Our results suggest that independent directors with greater career concerns (i.e., young directors, an expert in ac-counting or finance) are more critical in evaluating firm fundamentals and express more neg-ative tone in their reports. The relationship between the negative tone of IDRs and future firm performance is stronger for firms with greater monitoring needs. Overall, our evidence is consistent with the conjecture that career concerns motivate independent directors to dissem-inate information to external stakeholders.
{"title":"The Hidden Information Content: Evidence from the Tone of Independent Director Reports","authors":"Jiao Ji, Oleksandr Talavera, Shuxing Yin","doi":"10.2139/ssrn.3110205","DOIUrl":"https://doi.org/10.2139/ssrn.3110205","url":null,"abstract":"The paper investigates the link between the information content of independent directors’ re-ports (IDRs) and future firm performance. By conducting sentiment analysis of 23,984 IDRs of the Chinese listed companies from 2004-2012, we find that the tone of IDRs is positively related with future firm performance. We also posit that the tone of IDRs and its association with firm performance depends on director’s incentives to monitor. Our results suggest that independent directors with greater career concerns (i.e., young directors, an expert in ac-counting or finance) are more critical in evaluating firm fundamentals and express more neg-ative tone in their reports. The relationship between the negative tone of IDRs and future firm performance is stronger for firms with greater monitoring needs. Overall, our evidence is consistent with the conjecture that career concerns motivate independent directors to dissem-inate information to external stakeholders.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-01-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79418464","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}
This PowerPoint has proven useful for corporate executives, investors, and business students for thinking about the role of the firm's knowledge-building culture in creating value in general and sustaining competitive advantage in particular. Competitive advantage is reflected via the fade rate at which the firm's economic returns regress over time towards the cost of capital. Intangible assets are typically considered the cause and driving force for achieving competitive advantage. However, using company examples, which include firms' long-term life-cycle charts, I introduce the idea that the root cause of competitive advantage is actually the firm's knowledge-building culture that generates intangible assets such as patents, organizational routines, network advantages, brand names, and the like. The final slides contain suggestions (especially relevant to business students) for understanding and participating in a knowledge-building culture.
{"title":"The Root Cause of Competitive Advantage: Powerpoint Presentation","authors":"Bartley J. Madden","doi":"10.2139/ssrn.3098628","DOIUrl":"https://doi.org/10.2139/ssrn.3098628","url":null,"abstract":"This PowerPoint has proven useful for corporate executives, investors, and business students for thinking about the role of the firm's knowledge-building culture in creating value in general and sustaining competitive advantage in particular. Competitive advantage is reflected via the fade rate at which the firm's economic returns regress over time towards the cost of capital. Intangible assets are typically considered the cause and driving force for achieving competitive advantage. However, using company examples, which include firms' long-term life-cycle charts, I introduce the idea that the root cause of competitive advantage is actually the firm's knowledge-building culture that generates intangible assets such as patents, organizational routines, network advantages, brand names, and the like. The final slides contain suggestions (especially relevant to business students) for understanding and participating in a knowledge-building culture.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2018-01-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79616927","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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