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An Analysis of Corporate Accounting and Reporting Practices in Bahrain
The primary objective of this dissertation is to determine the factors that have shaped the corporate financial reporting practices in Bahrain. Prior researchers have offered two explanations, environmental factors and cultural importation, for the emergence of financial reporting practices in developing countries. The environmental explanation suggests that a nation's financial reporting practices will be shaped by its socioeconomic structure. The cultural importation explanation states that the desire for international legitimacy creates incentives for developing nation to adopt Western financial reporting practices. Bahrain provided an excellent environment in which to examine the two explanations since its public and closed corporations have similar economic characteristics. Only public corporations are legally required to publish financial reports. I posited that public corporations would try to gain legitimacy for their published reports by adopting Western standards, while closed corporations would not have a similar incentive. I used an interpretive framework to analyze the Bahrain socioeconomic environment and to examine the general financial reporting practices of Bahraini corporations. I found that closed corporations provided data responsive to the Bahraini environment. Public corporations, however, adopted International Accounting Standards. My analysis supported prior researchers7 findings that colonialism, the need for international legitimacy, and international audit firms were important factors in gaining acceptance for Western accounting practices. The adoption of Western financial reporting practices may be dysfunctional to a developing nation like Bahrain if these practices do not provide relevant information about corporate performance. Therefore, Bahrain, as well as other developing countries, needs to proceed cautiously before adopting Western corporate reporting practices.
Information Content of Non-GAAP Earnings of Cross-Listed Companies
To supplement earnings reported under generally accepted accounting principles (GAAP), public companies often voluntarily report alternative measures of earnings called non-GAAP earnings (NGE). These companies assert that NGE exclude the effect of non-recurring transactions, thereby helping users of financial information to better assess the company's past performance and prospects. Because NGE measures are not well defined, managers can exploit the inherent discretion in calculating NGE to mislead users. Prior studies provide arguments and evidence on the informative as well as opportunistic use of NGE. However, the studies have examined the characteristics and informativeness of NGE with a focus on U.S. companies. The results of studies that consider the NGE disclosure by U.S. companies may not be generalizable to the cross-listed companies because foreign financial reporting standards are different from the U.S. GAAP. Further, prior studies report a difference in earnings quality of U.S. firms and cross-listed firms, which can also result in a difference in the informativeness of their NGE. To fill this gap in literature, I examine whether the informativeness of NGE of cross-listed companies is different from that of U.S. companies. This study contributes to the debate on the informativeness of NGE. It provides evidence that in general, NGE are equally informative for U.S. and foreign companies but foreign companies are more opportunistic in excluding recurring items from NGE. The results of this study are of potential interest to investors, regulators, and academics who are interested in and interact with cross-listed companies.
The Impact of the Ceiling Test Write-off on the Security Returns of Full Cost Oil and Gas Firms
This study examined the impact of the ceiling test write-off on the stock prices of affected full cost (FC) oil and gas firms.
An investigation of the effects of SFAS No.121 on asset impairment reporting and stock returns
Prior to Statement of Financial Accounting Standards No.121 (SFAS No.121): Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of, managers had substantial discretion concerning the amount and timing of reporting writedowns of long-lived assets. Moreover, the frequency and dollar amount of asset writedown announcements that led to a large “surprise” caused the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) to consider the need for a new standard to guide the recording of impairment of long-lived assets. This study has two primary objectives. First, it investigates the effects of SFAS No.121 on asset impairment reporting, examining whether SFAS No.121 reduces the magnitude and restricts the timing of reporting asset writedowns. Second, the study compares the information content (surprise element) of the asset impairment loss announcement as measured by cumulative abnormal returns (CAR) before and after the issuance of SFAS No.121. The findings provide support for the hypothesis that the FASB's new accounting standard does not affect the magnitude of asset writedown losses. The findings also provide support for the hypothesis that SFAS No. 121 does not affect the management choice of the timing for reporting asset writedowns. In addition, the findings suggest that the market evaluates the asset writedown losses after the issuance of SFAS No. 121 as good news for “big bath” firms, while, for “income smoothing” firms, the market does not respond to the announcements of asset writedown losses either before or after the issuance of SFAS No. 121. The findings also suggest that, for “big bath” firms, the market perceives the announcement of asset impairment losses after the adoption of SFAS No. 121 as more credible relative to that before its issuance. This could be because the practice of reporting asset writedowns after the issuance of SFAS No. …
The Contrast-Inertia Model and the Updating of Attributions in Performance Evaluation
The two problems which motivate this research concern the role of managerial accounting information in performance evaluation. The first problem is that the processing of accounting information by individual managers may deviate from a normative (Bayesian) pattern. Second, managers' use of accounting information in performance appraisal may contribute to conflict between superiors and subordinates. In this research, I applied the contrast-inertia model (C-IM) and attribution theory (AT) to predict how accounting information affects managers' beliefs about the causes for observed performance. The C-IM describes how new evidence is incorporated into opinions. Application of the C-IM leads to the prediction that information order may influence managers' opinions. Attribution theory is concerned with how people use information to assign causality, especially for success or failure. Together, the C-IM and AT imply that causal beliefs of superiors and subordinates diverge when they assimilate accounting information. Three experiments were performed with manufacturing managers as subjects. Most of the subjects were middle-level production managers from Texas manufacturing plants. The subjects used accounting information in revising their beliefs about causes for performance problems. In the experiments, the manipulated factors were the order of information, subject role (superior or subordinate), and the position of different types of information. The experimental results were analyzed by repeated measures analyses of variance, in which the dependent variable was an opinion or the change in an opinion over a series of evidence items. The experimental results indicate that the order of mixed positive and negative information affects beliefs in performance evaluation. For mixed evidence, there was significant divergence of opinions between superiors and subordinates. The results provide little evidence that superior and subordinate roles bias the belief updating process. The experiments show that belief revision in performance evaluation deviates from the normative standard, and that the use of accounting information may …
Determinants of Corporate Governance Choices: Evidence from Listed Foreign Firms on U.S. Stock Exchanges
This study analyzes corporate governance practices of foreign (non-U.S.) issuers listed on the New York Stock Exchange (NYSE) and Nasdaq. Specifically, I examine the extent to which these foreign issuers voluntarily comply with U.S. stock exchange corporate governance requirements applicable to domestic issuers. My sample consists of 201 foreign companies primarily domiciled in Brazil, China, Israel, and the United Kingdom. I find that 151 (75 per cent) of the sample firms do not elect to comply with any of the U.S. corporate governance requirements. Logistic regression analysis generally supports the hypotheses that conformance with U.S. GAAP and percentage of managerial ownership are positively associated, and that percentage ownership by major shareholders is negatively associated with foreign firms electing to comply with U.S. corporate governance rules. This evidence is relevant for regulators and investors.
An Analysis of the Incremental Information Gain in Combining Economic, Socio-Political, and Joint-Decision Characterizations in a Study of Accounting Choice: the Case of SFAS 106
Typical accounting studies attempting to explain accounting method choice employ positive theoretical hypotheses and test for association between adoption method or adoption timing and economic measures that focus upon specific firm stakeholders. Such studies addressing the adoption and impact of SFAS 87, "Employer's Accounting for Pensions," yield mixed and contradicting results. Various researchers have suggested that traditional economic analysis often fails to capture important explanatory variables and is far too simplistic. The purpose of this study is to expand analysis by evaluating a particular accounting choice by means of three different characterizations. SFAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," allows management to choose between two very different methods of adopting the standard. The principal question explored in this study is: why did managers of firms that employ defined benefit postretirement plans for benefits other than pensions choose to adopt SFAS 106 using a particular method? The research question is explored by means of three different characterizations: 1) a traditional economic characterization; 2) a sociopolitical characterization); and 3) a joint decision characterization. Logit methodology is used with method of SFAS 106 adoption as the binary dependent variable of interest. Results indicate that all three characterizations are important in understanding the SFAS 106 adoption method choice. Further, each characterization adds separate information toward comprehension of the choice, supporting the notion of the complexity of accounting choice issues.
An Empirical Investigation of the Lobbying Influence of Large Corporations on Selected FASB Standards
The Financial Accounting Standards Board is a private sector rule making body. Congressional inquiries have questioned whether the setting of accountin standards should remain in the private sector. Congressional critics have charged that the FASB has been captured by special interests and recommended that a governmental agency assume responsibility for standard setting. Specifically, critics charge that large corporations capture the Big Eight accounting firms who, in turn, have captured the FASB. Previous capture studies have concluded that the standard setting process is pluralistic and that the FASB has not been captured. The studies have focused on the influence of the Big Eight to determine if the FASB has been captured. They assume if standards do not reflect the expressed preferences of the Big Eight, then Congressional criticisms are invalid. The studies also assume a unidirectional influence between participants in the process and have ignored the intensity of preferences of the respondents.The purpose of this study is to provide a theoretical framework to specify selection of standards that would be expected to be subject to capture. This framework also recognizes the duo-directional nature of influence. The allegations of capture were tested using the standards selected in accordance with the theoretical framework. The following hypotheses were tested. HO_1 There is no positive statistically significant relationship between clients' preferences and an accounting firm's support for an outcome. HO_2 There is no positive statistically significant relationship between the preferences of large corporations and standards enacted by the FASB. HO_3 There is no positive statistically significant relationship between the preferences of the Big Eight firms and the standards enacted by the FASB. These hypotheses were tested for each Big Eight accounting firms and for each standard. A logist procedure was employed. The results of the tests, with three exceptions, indicate that any relationships that occurred …
Accounting Measurement Bias and Executive Compensation Systems
This dissertation presents empirical evidence intended to help answer two research questions. The first question asks whether executive compensation systems appear to exploit the bias in accounting-based performance measures in order to reduce the volatility in executive compensation and to allocate incentives more effectively across the range of activities performed by the executive. The second question asks whether compensation systems systematically differ between firms that use alternative accounting methods and whether any such systematic difference helps explain accounting choice. Parameters estimated in fixed-effects endogenous switching regression models were used to test the risk-shielding and incentive-allocation hypotheses. The models were estimated across a dataset consisting of 1151 executive-year observations of annual compensation paid to 222 top-level executives in 40 oil and gas firms. The dataset was partitioned by accounting method and separate models estimated for the full cost and successful efforts partitions. The tests provided modest support for the risk-shielding and incentive-allocation hypotheses, revealing that accounting measurement bias is used to focus incentives for effort in the exploration activity and to reduce executives' exposure to production risk. The design also allowed an estimate of the proportional change in compensation that was realized from the accounting choice actually made.
The Impact of the 1986 and 1987 Qualified Plan Regulation on Firms' Decision to Switch from Defined Benefit to Defined Contribution for Plans Larger than 100 Participants
The purpose of this research was to examine the United States population of plans with over 100 participants to determine the extent of the reaction away from defined benefit plans resulting from the 1986 and 1987 legislation.
An Analysis of Smoothing of Proved Oil and Gas Reserve Quantities and an Analysis of Bias and Variability in Revisions of Previous Estimates of Proved Oil and Gas Reserve Quantities
The purpose of this study is to determine whether oil and gas producing companies smooth their ending reserve quantities. Smoothing is defined as a reduction in variance in the trend of ending reserve quantities over time compared to the trend of ending reserve quantities less the hypothesized smoothing variable over time. This study focuses on two variables that are most susceptible to manipulation—revisions of previous estimates and additions. This study also examines whether revisions are positively or negatively biased and the variability of the revisions. The sample consists of 70 companies chosen from oil & Gas Reserve Disclosures: 1980-1984 Survey of 400 Public Companies by Arthur Andersen and Company. For each company, ending reserve quantities for the years 1978-1984 were regressed over time, and the standard deviation of the estimate (SDE) was calculated. Then the ending reserve quantities less the hypothesized smoothing variable were regressed over time, and the SDE was calculated. A linear model and a semi-logarithmic model were used. A smoothing ratio (SR) was determined by dividing the SDE of reserves less the hypothesized smoothing variable by the SDE of ending reserve quantities. An SR greater than one indicates smoothing, and an SR less than one indicates that smoothing did not occur. The mean percentage revision and a t-test were used to test for positive or negative bias in the revisions. The mean absolute percentage revision was used to assess the relative variability of revisions. The number of companies classified as smoothers of oil reserves was statistically significant for the semi-logarithmic model but not for the linear model. Under both models the number of companies classified as smoothers of gas reserves was statistically significant. Few companies had mean percentage revisions that were significantly different from zero. The majority of companies had mean absolute revisions of under ten percent.
An Experimental Examination of the Effects of Fraud Specialist and Audit Mindsets on Fraud Risk Assessments and on the Development of Fraud-Related Problem Representations
Fraud risk assessment is an important audit process that has a direct impact on the effectiveness of auditors' fraud detection in an audit. However, prior literature has shown that auditors are generally poor at assessing fraud risk. The Public Company Accounting Oversight Board (PCAOB) suggests that auditors may improve their fraud risk assessment performance by adopting a fraud specialist mindset. A fraud specialist mindset is a special way of thinking about accounting records. While auditors think about the company's recorded transactions in terms of the availability of supporting documentations and the authenticity of the audit trail, fraud specialists think instead of accounting records in terms of the authenticity of the events and activities that are behind the reported transactions. Currently there is no study that has examined the effects of the fraud specialist mindset on auditors' fraud risk assessment performance. In addition, although recent studies have found that fraud specialists are more sensitive than auditors in discerning fraud risk factors in situation where a high level of fraud risk is present, it remains unclear whether the same can be said for situation where the risk of fraud is low. Thus, the purpose of my dissertation is to examine the effects of fraud specialist and audit mindsets on fraud risk assessment performance. In addition, I examined such effects on fraud risk assessment performance in both high and low fraud risk conditions. The contributions of my dissertation include being the first to experimentally examine how different mindsets impact fraud-related judgment. The results of my study have the potential to help address the PCAOB's desire to improve auditors' fraud risk assessment performance though the adoption of the fraud specialist mindset. In addition, my study contributes to the literature by exploring fraud-related problem representation as a possible mediator of mindset on fraud risk assessment …
The Effects of the Use of Natural Language Processing and Task Complexity on Jurors' Assessments of Auditor Negligence
The purpose of my dissertation is to examine jurors' evaluation of auditor negligence in response to auditors' use of natural language processing (NLP). To test my research objective, I conducted a 2x2 between-subjects experiment with 175 jury-eligible individuals. In the online experiment, I manipulated whether the audit team analyzes contracts with NLP software or by having human auditors read the contracts. I also manipulated task complexity as complex or simple. The dependent variables include a binary verdict variable and a scaled assessment of negligence. This dissertation makes several contributions to the accounting literature and practice. First, it contributes to the recent juror literature on emerging technologies by providing evidence that jurors attribute higher negligence assessments to auditors when auditors use NLP to examine contracts than when human auditors examine contracts. I also find that auditors' use of NLP leads to jurors' higher perceived causation, which, in turn, increases jurors' assessments of auditor liability. Second, this study answers the call of other researchers to examine the relationship between task complexity and negligence in different settings. I also find a marginally significant interaction effect of the use of NLP compared to human auditors to perform audit testing that is greater for complex tasks than for simple tasks. Third, this dissertation provides new insights for practitioners and accounting firms when using emerging algorithm-based AI technologies such as NLP. As more AI technologies are used in audit practice, the findings will provide helpful insights for audit practitioners to consider when they utilize technologies to design and implement audit procedures.
The Relationship between Privatization, Culture, Adoption of International Accounting Standards, and Accounting in Egypt
This study explores how the Egyptian socioeconomic factors impacted the implementation of International Accounting Standards (IASs) in Egypt. Prior research concluded that developing nations have special needs when it comes to accounting and financial reporting and recommended nation-specific analysis. The author adapts Gray's (1988) model, which connects Hofstede's cultural dimensions with accounting practice, to fit the Egyptian environment.
Financial Reporting in Poland: Privatization of Select Firms Traded on the Warsaw Stock Exchange
Poland's transition from a centrally-planned economy (CPE) to a market economy began in 1989. Building a market economy out of the failures of a CPE represents an unprecedented process in the history of economic development. At the core of the transition is the privatization of state-owned enterprises (SOEs). Many problems encountered during privatization are accounting related, and before privatization can occur valuation issues must be resolved. What has been the role of accounting in Poland's transition? Accounting is an interactive process that reflects and creates reality. The accounting process facilitates the calculation of the value created by a firm by attempting to trace the flow of resources through the value-creating process, and it identifies, measures, records, summarizes, and reports transactions. How these transactions are internalized determines how they flow through the accounting process, and, because the former SOEs are complex organizations in transition, decisions concerning when and how to record events can be diverse. The primary objective of this study is to provide insight into the accounting transition in Poland by addressing issues of ownership rights, valuation, financial reporting, and disclosure. The research question is: How is accounting transforming and being transformed in Poland? The research question is addressed in the context of the political and economic environment of three SOEs privatized and traded on the Warsaw Stock Exchange. To identify the role accounting played, I examined the financial reports of three of the first Polish SOEs privatized, employing case study methodology. The analysis indicates that accounting facilitated the transition by creating capital with the overstatement of assets. The overvalued assets will have to be absorbed in future periods, and subsequent research should address this problem.
A Study of Firm Location to Examine Disclosures and Governance Using a Dual Approach: Quantitative Analysis Based Upon the Sarbanes-Oxley Act of 2002 and Qualitative Analysis of the Annual Report’s Management Discussion and Analysis
The purpose of this dissertation is to investigate the effect of U.S. firms’ geographic location, whether urban or rural, on their corporate disclosure and governance practices. An “urban” firm is one that is headquartered in a large metropolitan area; whereas, a “rural” firm is one that is headquartered some distance from any metropolitan area. Specifically, the study examines whether there are different stock market reactions to urban and rural firms around key event dates relative to the enactment of the Sarbanes-Oxley Act (SOX) on July 30, 2002. Also, the readability and linguistic style in the Management Discussion and Analysis (MD&A) section of public company’s annual reports (Form 10-K) to the Securities and Exchange Commission (SEC) are investigated to determine whether urban and rural firms communicate information differently to investors.
The Impact of Ambiguity and Risk on the Auditor's Assessment of Inherent Risk and Control Risk
The purpose of this study was to try to identify the impact of ambiguity and risk on the auditor's judgment about inherent risk and control risk when planning the audit. A second purpose was to determine how ambiguity tolerance/intolerance affects judgment.
Firm Performance and Analyst Forecast Accuracy Following Discontinued Operations: Evidence from the Pre-SFAS 144 and SFAS 144 Eras
Because of the non-recurring and transitory nature of discontinued operations, accounting standards require that the results of discontinued operations be separately reported on the income statement. Prior accounting literature supports the view that discontinued operations are non-recurring or transitory in nature, and also suggests that income classified as transitory has minimal relevance in firm valuation. Finance and management literature, however, suggest that firms discontinue operations to strategically utilize their scarce resources. Assuming that discontinued operations are a result of managerial motives to strategically concentrate resources into remaining continued operations, this dissertation examines the informativeness of discontinued operations. In doing so, this dissertation empirically tests the financial performance, investment efficiency, valuation, and analyst forecast accuracy effects of discontinued operations. In 2001, Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) 144 (hereafter SFAS 144) replaced Accounting Principles Board's Opinion 30 (hereafter APB 30) and broadened the scope of divestiture transactions to be presented in discontinued operations. Some stakeholders of financial statements argued that discontinued operations were less decision-useful in the SFAS 144 era because too many transactions that do not represent a strategic shift in operations were separately stated as discontinued operations on the income statement. With the possibility that the discontinued operations reported in SFAS 144 era may not reflect a major strategic reallocation of resources, this dissertation examines whether the relationship between discontinued operations, firm performance, investment efficiency, and analyst forecast accuracy are different in the pre-SFAS 144 and SFAS 144 era. Using a sample of firms that discontinued operations between 1990 and 2012, this dissertation study finds limited evidence that firms experience improvement in financial performance following discontinued operations and that such improvement is only observed in pre-SFAS 144 era. The results also suggest that any improvement in financial performance documented is conditional on the profitability …
The Effects of Interactions with IRS Employees on Tax Practitioners' Attitudes toward the IRS
The purpose of this study was to determine the effects of interactions with IRS employees on tax practitioners' attitudes toward the IRS. The mission of the IRS is to inspire the highest degree of public confidence as it collects the proper amount of tax revenues at the least cost to the public. The IRS believes it must project a favorable image to tax practitioners in order to foster a high level of support for its mission. Prior surveys of tax practitioners found that practitioners have generally unfavorable attitudes toward the IRS and its employees. This study examined whether the unfavorable attitudes result from interactions with IRS employees, and provides empirical evidence of the effects of interactions with IRS employees on tax practitioners' attitudes toward the IRS.
An examination of the factors that influence an auditor's decision to use a decision aid in their assessment of management fraud.
In recent years, the accounting profession has faced increased scrutiny because of scandals involving management fraud (e.g., Enron, WorldCom). In response, Statement on Auditing Standards (SAS) #99 has expanded auditors' responsibility for detecting fraud, requiring auditors to gather significantly more information in their assessment of fraud. In addition, the Public Company Accounting Oversight Board (PCAOB) will focus on fraud detection through their inspections of registered accounting firms. In light of the increased emphasis on auditors' responsibility for detecting fraud, public accounting firms face the challenge of improving their fraud detection process, including their assessment of management fraud risk. Decision aids are one way for auditors to improve their assessment of management fraud risk. In fact, several studies from the decision aid literature suggest that aids are useful tools for a variety of tasks, including fraud risk assessment. At the same time, another stream of the decision aid reliance literature, which looks at people's willingness to rely on decision aids, suggests that individuals tend to be reluctant to accept the output given by an aid. Thus, the primary focus of this paper is on uncovering factors that would encourage one to voluntarily use and rely upon a decision aid. Toward that end, 132 senior-level auditors participated in an experiment that examined how several factors (confidence, perceived usefulness, client size, and conformity pressure) affect decision aid usage and reliance. The results show that perceived usefulness and decision aid reliance are significantly related. Further, the results suggest that perceived usefulness affects reliance more than variables examined in prior studies (e.g., confidence). Finally, the results suggest that decision aid usage mediates the relationship between perceived usefulness and reliance. The results of the current study have important implications for research in both the information systems and decision aid reliance areas. First, the study shows that …
Who Makes the Decision? Managerial Influence on Corporate Boards and Auditor Selection, Change, and Compensation
This dissertation examines whether managers influence corporate boards of directors in their auditor selection, change, and compensation decisions. This topic is important because it addresses concerns that the Sarbanes-Oxley Act of 2002 (SOX) is not effective in eliminating managerial influence over auditor engagement decisions and that it may provide a false sense of security to investors. These concerns are based on the implicit assumption that managers prefer weaker governance oversight and lower audit quality. However, empirical research testing associations between managerial influence and audit-related decisions post-SOX is scarce and generally guided by agency theory. Incorporating agency, stewardship, and resource dependence perspectives, I find that managerial preferences for auditor selection are not aligned. Specifically, CEOs positively influence the selection of higher quality auditors, whereas CFOs have the opposite effect. Further, CEOs who hold powerful roles as chairs of their companies' boards of directors appear to mitigate the negative influence of CFOs and inside directors on audit quality. CEOs serving in dual roles also oppose auditor turnover when lower earnings quality prompt higher demand for audit effort. Finally, my study provides some evidence that management exercises downward pressures on audit fees, suggesting that managers utilize their authority beyond the regulations established by SOX to negotiate auditor compensation.
An Exploratory Investigation of Socio-Economic Phenomena that May Influence Accounting Differences in Three Diverse Countries
This dissertation attempts to provide an exploratory structure to respond to, and tries to resolve, an existing void in international accounting research. The void is a lack of coherently structured, nation-specific, descriptive research to investigate socio-economic phenomena which may influence financial accounting. This dissertation's salient features include a political economy theory, an exploratory, sociological method, and a case study format. The political economy of accounting, introduced by Tinker [1980] and refined by Cooper and Sherer [1984], emphasizes a persuasive social relations dimension. This theory motivates selection of three countries (the United States, France, and Japan) that appear to have divergent socio-cultural environments. An exploratory and analytical approach of modified (enlarged) exogenism, developed by Smith [1973, 1976] and adapted to accounting by McKinnon [1986], provides an analytic structure for this exploratory investigation. Modified exogenism focuses upon an open, dynamic social system (the process of financial accounting), and provides analysis reflecting four major areas (the environment, intrusive events, intra-system activity, and trans-system activity). After examining the nation-specific financial accounting (socio-economic) structures for each country, an analysis of selected financial disclosures attempts to gain a better understanding of how socio-economic factors have influenced the development of financial accounting. My primary objective is to attempt to provide some insight about ,how diverse socio-political factors have impacted the development of financial accounting in three countries. Library research of nation-specific literature attempts to extract a relatively accurate picture of social, political, and economic institutions and policies, and relates such findings to financial accounting processes for each nation. This dissertation attempts to provide a necessary foundation for future theoretical international accounting harmonization studies.
Fluency Training as a Pedagogical Tool to Improve Performance of Undergraduate Students Enrolled in the First Financial Accounting Course at a Regional Oklahoma University
This study contributes to the debate on accounting pedagogy in the basic financial accounting course by examining the pedagogical tool of fluency training as a way to improve student performance. Fluency training has been shown to improve performance of students in other academic disciplines.
Taxpayer compliance from three research perspectives: a study of economic, environmental, and personal determinants.
Tax evasion is a serious issue that influences governmental revenues, IRS enforcement strategies, and tax policy decisions. While audits are the most effective method of enforcing compliance, they are expensive to conduct and the IRS is only able to audit a fraction of the returns filed each year. This suggests that audits alone are not sufficient to curb the billions of dollars of tax evaded by taxpayers each year and that a better understanding of factors influencing compliance decisions is needed to enable policymakers to craft tax policies that maximize voluntary compliance. Prior research tends to model compliance as economic, environmental, or personal decisions; however, this study models it as a multifaceted decision where these three perspective individually and interactively influence compliance. It is the first to decompose perceived detection risk into two dimensions (selection risk and enforcement risk) and investigates how these two dimensions of risk, decision domains (refund or tax due positions), and three personal factors (mental accounting, narcissism, and proactivity) influence taxpayers’ compliance decisions. I conducted a 2x2 fully crossed experiment involving 331 self-employed taxpayers. These taxpayers have opportunities to evade that employed taxpayers do not. For example, they can earn cash income that is not reported to the IRS by third parties. For self-employed taxpayers (especially those wanting to evade), perceived selection and enforcement risks may be distinctly different depending on a taxpayer’s situation, what they believe they can control, and what risk they are willing to accept. For example, selection risk may be perceived as the greatest risk for those with unreported items on their return, while enforcement risk may be more prominent for those perceiving certain levels of selection risk. Thus, I believe self-employed taxpayers are the most appropriate population to sample from and are likely have reasonable variation in the three personal factors …
Tax Compliance in a Social Setting: the Influence of Norms, Perceptions of Fairness, and Trust in Government on Taxpayer Compliance
Many taxing authorities, including those in the United States (U.S.), rely on voluntary tax compliance and continually search for ways to increase tax revenues. Most of these methods are costly and labor intensive, such as audits and penalties for noncompliance. Prior tax compliance research has heavily investigated the influence that economic factors, such as tax rates and penalties, have on individual compliance intentions. However, economic models fail to fully predict individual tax compliance. Psychology literature suggests that social factors may also play an important role in individual tax compliance decisions. The purpose of this study is to examine the influence that social and psychological factors have on individuals' tax compliance intentions. Specifically, a model of taxpayer compliance is hypothesized that suggests that norms, perceived fairness of the tax system, and trust in government have a significant influence on compliance intentions. Results of a survey of 217 U.S. taxpayers found support for the influence of social factors on tax compliance. This research concludes that social norms have an indirect influence on compliance intentions through internalization as personal norms. Specifically, as the strength of social norms in favor of tax compliance increase, personal norms of tax compliance also increase, and this leads to a subsequent increase in compliance intentions. This dissertation also finds that trust in government and the perceived fairness of the tax system have a significant influence on compliance intentions. Supplemental analyses indicate that trust in government fully mediates the relationship between perceived fairness of the tax system and compliance intentions. This research offers several contributions to accounting literature and provides valuable insight for taxing authorities. First, this study examines taxpayer compliance from a psychological, rather than an economics driven, perspective. The suggested model of taxpayer compliance posits that social norms have a significant influence on compliance intentions. This information …
The Effect of Social Norms on Client Responses to Audit Inquiries
Audit inquiry can be a valuable source of information for auditors, particularly when the client provides useful information about important issues that could affect the audit. Recent studies indicate that the way an audit inquiry is conducted can affect the level of cooperation in the client's response. In this study, I investigate the use of social norms as an intervention auditors could include in their inquiries to increase the likelihood of client cooperation. To test my hypotheses, I conducted a 2x2 between-subjects experiment with 138 MBA and senior accounting students who proxied for non-accounting and accounting managers, respectively. I manipulated the auditor's use of a positive descriptive norm, which informed participants that the desired behavior is typical among similar others. I also manipulated the auditor's use of a negative injunctive norm, which informed participants of social disapproval for not engaging in the desired behavior. The dependent variable was a scaled measure of the likelihood the participant would disclose useful information in their response to the auditor. I find evidence of a main effect for both social norms I test. I do not find evidence of an interaction between the two social norms. My findings contribute to the audit literature as well as to audit practice. First, I contribute to the audit literature by identifying factors that improve client cooperation with an audit inquiry, including the communication of a positive descriptive norm and a negative injunctive norm. Second, my findings contribute to practice by providing evidence that social norms included in an audit inquiry can persuade clients to cooperate with an inquiry.
The Effects of Generational Stereotypes and Attribute Affirmation on the Collection of Audit Evidence
As the workplace has evolved over the past few years, several studies have documented perceived differences in personalities, values, and preferences between generations in the workplace, including in public accounting. In this study, I examine whether exposure to a negative preconceived belief about a staff auditor's generation (generational stereotype) influences the affective state of staff auditors and ultimately causes them to reduce the extent to which they communicate with a client manager to gather the necessary information to perform an audit adequately. I also investigate whether attribute affirmation from a work buddy helps elicit positive affect to mitigate the effects that exposure to negative generational stereotypes may have on audit evidence collection. I conducted a 2 x 2 experiment using graduate auditing students as a proxy for staff auditors. I find that general affect (i.e., mood) rather than interpersonal affect (i.e., likability), drives the negative effect of exposure to generational stereotypes on willingness to collect more audit evidence. I also find that high levels of negative mood can negatively impact participants' self-efficacy. I, however, failed to find evidence of a moderated mediation. The presence of an attribute affirmation results in an insignificant increase in positive affect. When staff auditors are exposed to a negative generational stereotype, attribute affirmation does not evoke enough positive affect to help auditors overcome the generational stereotype threat.
Balanced Scorecards: An Experimental Study of the Effects of Linking the Evaluators' and Subordinates' Balanced Scorecards on Performance Evaluation.
In the early 1990s, Robert Kaplan and David Norton introduced and developed a new performance measurement and management system called the balanced scorecard (BSC). Most studies have found that evaluators tend to ignore or are not willing to use nonfinancial measures. This study attempts to examine whether the explicit linkage between the evaluator's BSC and the subordinate's BSC makes the evaluators use nonfinancial measures in performance evaluation. This study used an experimental design where subjects were asked to evaluate two managers' performance under explicit linkage versus nonexplicit linkage conditions. The difference between performance evaluation scores of the two managers under the two linkage conditions captures the influence of explicit linkage between BSCs on performance evaluation. I used regression analyses to test my hypothesis. The results of the regression analyses support my hypothesis. This study attempts to explore one possible reason for evaluators' not using nonfinancial measures much in performance evaluation. It is the first one that studies the influence of the linkage between the BSCs on performance evaluation.
Client Narcissism and the Decision to Switch Tax Professionals
Contentious interactions may arise between a tax professional and client upon a disagreement over a tax position. In an increasingly competitive tax return preparation market, these contentious interactions represent a significant threat to tax practitioners' client satisfaction and retention objectives. I conduct an experiment in which I examine the effect of three factors on tax clients' (1) likelihood to accept the advice of the tax accountant and (2) likelihood to switch tax accountants upon receiving professional advice counter to their preferred tax position. The three factors are: (1) clients' antagonistic narcissism; (2) clients' relationship with the accountant; and (3) how the advice is framed by the tax accountant. The results are based on a sample of 93 taxpayers. First, this study examines how clients' measured levels of narcissistic antagonism (hereafter, antagonism) impacts their reaction to "being told no" by their tax professional. Results indicate that upon the receipt of advice contrary to their preferences, highly antagonistic clients are more likely to (1) engage in a contentious interaction with their professional and (2) switch to a new tax professional. Supplemental path analyses document that individuals with high levels of antagonism cognitively react to instances of "being told no" by simultaneously devaluing their professionals' credibility and role as a client advocate, leading to these aggressive behaviors. This study also examines how the social closeness of the professional-client relationship influences the argue and switch decisions. Multivariate analysis indicates that social closeness is significantly related to the argue and switch decision. However, univariate results do not show significant relationship between social closeness and each of the decisions individually. That is, I find partial support for the professional publications and AICPA recommendations that tax practitioners should develop personal relationships with their clients to improve client satisfaction and likelihood of retention. Clients are marginally more likely …
Team performance: Using financial measures to evaluate the effect of support systems on team performance.
Organizations invest in team-based systems in order to generate innovative practices that will give them a competitive edge. High-performing teams require training and other support systems to gain the skills they need as well as to create and maintain an environment conducive to their success. The challenge for managers is to make resource allocation decisions among investment alternatives to maximize team effectiveness and still ensure a financial return for company investors. This study has three objectives. The first objective is to investigate whether there is a positive relationship among organizational environment, team potency (the team's collective belief it will succeed) and team performance. Results indicate that the presence of four organizational support systems influences team potency and performance. These support systems are the Design and Measurement, Rewards, Training and Communications Systems. In addition, results indicate that team potency is a mediating variable between the Design and Measurement and Communications Systems and team performance. These results suggest that companies are able to influence team performance by investing in environmental support systems. The second objective is to examine whether team members and managers view the organizational environment differently. Results indicate that managers view the Training and Communications Systems as more important, while teams perceive the Design and Measurement System and the Rewards System to be more important to their success. Since the systems that team managers view as important may influence their investment decisions, these differences may suggest a resource alignment issue. Third, a measure of team effectiveness based on financial measures is introduced. Published literature emphasizes attitudinal, behavioral and operational measures of performance. A financial measure offers a method of evaluating performance that is similar to methods used in capital budgeting and may be consistently applied across different types of teams with different purposes. The data collection process was performed by …
The Effect of Restructuring of Peer Firms on Investment
Firms' operational restructuring involves information relevant to strategic choices as well as future demand and cost conditions. This study examines the relationship between peer firms' restructuring and a company's responsiveness to its growth opportunities. Peer firm restructuring can increase uncertainty with respect to a company's payoffs regarding its investment projects, leading to decreased responsiveness to growth opportunities. Using a large sample of public companies during 2006–2020, I find that peer firms' restructuring is negatively associated with the responsiveness of capital expenditures (Capex) to growth opportunities. The results suggest that peer firms' restructuring activities provide information about a company's investment projects above and beyond industry shocks reflected in changes in industry sales. Furthermore, these associations are moderated by industry competition. The negative effects of peer firms' restructuring on Capex sensitivity are the strongest in high-competition industries.
Three Essays on the Effects of Executives' Informal Networks on Shareholder Value, Financial and Tax Reporting Outcomes
Prior literature suggests that CEOs capitalize on their position within the hierarchy of all business executives, resulting in various – both positive and negative – firm outcomes. Using a novel data set on golf outings to measure the quality of a CEO's informal (vs. formal) network, as measured by the CEO's network centrality, this study examines whether well-connected CEOs generate private gains through insider trades. Results suggest that, among golfing CEOs, CEOs with higher quality informal networks generate significantly higher insider trading profits on sales of their firms' stock, consistent with more famous, powerful, and influential CEOs possessing superior information. The paper continues by delineating a channel through which private information flow to network participants by documenting significantly different golf patterns of CEOs during the two weeks before material firm events become public while showing that CEOs generate noticeably higher insider trading profits from stock trades executed during the two weeks following these golf outings. This study highlights a setting in which shareholders are at risk of wealth transfer and illustrates the potential limitations of regulation concerning insider trading.
A Comparison of Cognitive Moral Development of Accounting Students at a Catholic University with Secular University Accounting Students
Previous research has shown that accountants may be inadequate moral reasoners. Concern over this trend caused the Treadway Commission (1987) and the Accounting Education Change Commission (1990) to call for greater integration of ethics into the student's training. Ponemon and Glazer (1990) found a difference in cognitive moral development (CMD) between accounting students at a public university and a private university with a liberal arts emphasis. This study expands Ponemon and Glazer's research by examining two liberal arts universities, one a private, secular institution and one a Catholic institution. The primary research question asks if Catholic university accounting students manifest greater CMD growth than secular university accounting students. Additionally, this study examines and compares the priority that accounting students from the different institutions place on ethical values versus economic values. It was expected that Catholic university accounting students would manifest both greater CMD growth and a greater concern for ethical values over economic values when compared with non-Catholic university accounting students. The study utilized a two-phase approach. In the first phase, an organizational study of two institutions was made to determine how each strives to integrate moral development into their accounting students' education. In the second phase, lower-division and senior accounting students were given three ethical and values related tasks to complete which propose to measure differences in ethical and economic values.
Regulation and Political Costs in the Oil and Gas Industry: An Investigation of Discretion in Reporting Earnings and Oil and Gas Reserves Estimates
This study investigates the use of discretion by oil and gas companies in reporting financial performance and oil and gas reserve estimates during times of high political scrutiny resulting from increases in energy prices. Hypotheses tested in prior literature state that companies facing the risk of increasing taxes or new regulations reduce reported earnings to reduce this risk. This study uses a measure of high profitability (rank order of return on assets relative to industry peers) to identify oil and gas companies more likely to manage earnings during the period from 2002 to 2008. Two measures of discretionary accruals (total and current discretionary accruals), and a measure of discretionary depreciation, depletion, and amortization (DDA) were used as indicators of discretion exercised in reporting earnings. Data on oil and gas reserve disclosures was also hand-collected from Forms 10-K to investigate whether managers use reserve estimate revisions to reduce reported earnings through increasing the annual depletion expense. Results suggest that both oil and gas refining and producing firms use negative discretionary accruals to reduce reported earnings. Results also indicate that profitability is an important determinant of the use of negative discretionary accruals by these companies regardless of the time period examined. There is also evidence that oil and gas producing firms opportunistically revise their oil and gas reserve estimates to increase depreciation, depletion, and amortization expense during periods of high oil prices.
The Determinants and Consequences of Having a Chief Operating Officer
This study examines the determinant and consequences of having a chief operating officer (COO). Specifically, we investigate chief executive officer (CEO) related factors that affect the choice to employ a COO and look into the impact of having a COO on firm operational efficiency using a data envelopment analysis (DEA)-based measure. Although prior literature has extensively investigated the role of CEOs and chief finance officers (CFOs) on firm outcomes, few studies focus on the impact of COOs. Thus, this study explores characteristics associated with the likelihood that a firm will have a COO. This research also sheds light on the effect of COOs on firm operational efficiency because the core duties of COOs include optimizing operational performance and improving cost efficiency. Our results imply that CEO busyness, CEO ability, CEO demographic characteristics, and CEO network size have a significant impact on the decision to employ a COO. We also find that firms that have a COO have a lower level of operational efficiency than firms that do not. This result implies that the cost of having a COO outweighs the benefit of having one. The effects last for three years on average. Further, we find that firms with a COO have lower receivables turnover and sales to cost of goods sold ratio, lower sales to PPE expense ratio than firms without a COO. Finally, we find evidence that COOs with industry expertise are associated with higher operational efficiency than those without such expertise and outside COOs perform better than inside COOs in terms of operational efficiency.
Examination of the Effects of Experience and Missing Information on Tax Preparer Judgment
This research examines how experience and missing information affect judgments of tax return preparers. Tax return preparers may often be faced with the problem of incomplete information, and their responses to this problem may be conditioned by whether or not they recognize information is missing. Based on the Holland et al.'s cognitive theory of induction as applied to tax judgment by Marchant et al., it was hypothesized that experienced tax preparers would correctly classify more items as to their relevance to a specific tax issue than novice tax preparers. Additionally, it was hypothesized that the strength of recommendations of tax preparers who had no relevant information missing would be greater than the strength of recommendations of tax preparers who had relevant information missing and were prompted that information was missing. Lastly, it was hypothesized that prompting that relevant information was missing would have a greater effect on the strength of recommendations of tax return preparers with lesser specific experience than it would on the strength of recommendations of tax return preparers with greater specific experience. The results suggest that experienced tax preparers do recognize the relevance of information to a greater degree than novice tax preparers. There was no significant difference, however, in the strengths of recommendation of tax preparers who had no missing information and those who were prompted that information was missing. There was a significant difference in the strengths of recommendations of tax preparers with lesser specific experience who had been prompted that relevant information was missing and those who had not been prompted that relevant information was missing. Among tax preparers with greater specific experience, however, there was no significant difference between the two groups. These results suggest that tax preparers with greater specific experience recognized that relevant information was missing without being prompted, while tax …
The Impact of Social Learning and Social Norms on Auditor Choice
The purpose of this dissertation is to explore the influences of industry dynamic factors (e.g., peer selections) on a client’s subsequent decision to select the type of auditor (e.g., Big N versus non-Big N), following auditor turnover. More specifically, drawing on social norms and social learning theories, I develop testable implications and investigate whether and how industry dynamics have an incremental power in explaining auditor choice beyond traditional firm-specific variables documented in prior research. Using a large sample from years 1988 – 2012, I find that clients are more likely to imitate their industry peers’ prior selections to select the type of their succeeding auditors, consistent with the implications of social learning theory. I also find that clients in industries with stronger industry norms, as measured by a greater proportion of clients audited by Big N auditors in an industry, are more likely to select Big N auditors as their succeeding auditors, consistent with the implications of social norms theory. To my best knowledge, this is the first study to explore the impact of social dynamics measured at the industry level on auditor selection and provide large-sample evidence on the relations between industry dynamics and auditor selection at the firm level. Findings of this study provide insights into the dynamic process of auditor selection in which companies do not make auditor-selection decisions in isolation of one another as often posited in existing literature, contribute to the research on the determinants of auditor choice by incorporating industry dynamics into an agent-principal model, and provide a more comprehensive view of the phenomenon of auditor selection.
The Impact of Counter-Rumor Strategy and Source on Non-Professional Investors' Judgments over Social Media
Non-professional investors often rely on information obtained from social media to make investment decisions. Extant literature has not examined the most effective strategy for the target company to counter the rumors so that investors will be more willing to continue investing in the target firm. Drawing on source credibility theory and the moral intensity model, I propose that the most effective strategy would vary given different agents who are selected to counter the rumor. After conducting a 2 x 3 (counter-rumor source x counter-rumor strategy) experiment with 272 non-professional investors recruited from Amazon Mechanical Turk, my study shows that when an internal agent (e.g., the CEO) acts as a counter-rumor source, shareholders are more willing to invest in the company when the internal agent utilizes a denial strategy rather than a reassociation or a questioning strategy. In contrast, when an external agent (e.g., a famous food blogger) serves as the counter-rumor source, the external agent can also use a questioning strategy in addition to a denial strategy to motivate shareholders to be more willing to invest in the company; however, the external agent still needs to avoid from engaging a reassociation strategy. Moderated serial-mediation analysis shows that the persuasiveness of the counter-rumor information and investors' perceived rumor intensity serially mediate the effect of counter-rumor source on investors' willingness to invest, and this effect is conditioned on the different strategy used to counter the rumor. Overall, the main effect of counter-rumor source suggests that external agents are perceived as more persuasive, which leads investors to perceive less rumor intensity, making them more willing to invest in the target company. The results of my paper can thus inform companies' social media policy.
Market valuation of the translation process under SFAS No. 52: Further evidence
This research investigates the information content of the translation information resulting from exchange rate fluctuations. Two hypotheses are examined. The dollar movement hypotheses investigate whether there is a positive relationship between security valuation and the translation information and whether the market assigns different weights to translation gains and losses in both the depreciating and appreciating exchange rate environments. The geographic concentration hypothesis tests whether the market's response to the translation information is geographically sensitive. Prior research on SFAS No. 8 and SFAS No. 52 has concentrated on the price and trading volume responses to the deliberations and issuance of these two accounting statements. Soo and Soo (1994) examine the long-term effect of the disclosure requirement under SFAS No. 52 on MNEs' security prices from 1981 to 1987. However, they fail to address two important issues pertinent to the MNE research--the effects of exchange rate changes and the geographic concentration. The dollar movement hypotheses provide strong evidence that under both the appreciating and depreciating exchange rate environments, a positive relationship exists between security returns and the translation information when MNEs disclose translation losses in stockholders' equity. The findings also provide evidence for a positive or at least non-negative relationship between security returns and the translation information when MNEs disclose translation gains. The findings provide evidence that the positive relationship is greater in appreciating than in depreciating exchange rate environment for losses, but no evidence of such a difference exists for gains. The evidence also indicates that the market reacts more to the translation information when translation losses are reported than when translation gains are reported in both exchange rate environments. The examination of the impact of the geographic concentration of MNEs' foreign operations provides limited evidence to support the geographic concentration hypothesis. One possible explanation for the weak findings is that …
Accounting Regulation and Information Asymmetry in the Capital Markets: An Empirical Study of Accounting Standard SFAS no 87
This study uses both basic and self-selection regression models to test three hypotheses about the effect of SFAS 87 disclosures on information asymmetry during 1985- 1987. Both types of models test the hypotheses after controlling for changes in the inventory holding and order processing costs of the spread, while the self-selection models also control for potential self-selection bias.
Monitoring or moral hazard? Evidence from real activities manipulation by venture-backed companies.
Prior literature suggests two competing theories regarding the role of venture capitalists (VCs) in their portfolio companies. The VC monitoring hypothesis argues that VCs effectively resolve the managerial agency problem through close monitoring and restraining managers' earnings management behavior. The VC moral hazard hypothesis argues that VCs aggravate the private benefits agency problem by exerting influence over managers to artificially inflate exit stock price through earnings management. Using a sample of IPO firms between 1987 and 2002, after controlling for the magnitude of accruals manipulation (AM), I compare the magnitude of real activities manipulation (RM) between venture-backed and non-venture-backed companies. I find that relative to non-venture-backed companies, venture-backed companies show significantly less RM in the first post-IPO fiscal year. The results are robust after controlling for the VC selection endogeneity. The finding supports the VC monitoring hypothesis that VCs restrain managers' RM behavior. Furthermore, I document that venture-backed companies exhibit a significant difference from non-venture-backed companies only in the first post-IPO fiscal year. The difference between the two groups in either the IPO year or the second post-IPO fiscal year is not significant, or at best, is weak. This finding is consistent with the argument that VCs tighten their control during the lockup expiration period when insiders such as managers or founders have strong incentives to inflate earnings. By the end of the second post-IPO fiscal year when VCs exit the portfolio companies, their impact on portfolio companies' RM decreases dramatically which makes the difference between the two groups less significant. In addition, using a sample of venture-backed IPOs from 1987 to 2002, I find that companies backed by high-reputation VCs show significantly less RM than those backed by low-reputation VCs in the first post-IPO fiscal year. The results are robust to alternative VC reputation proxies. This finding is consistent …
Effects of Auditor-provided Tax Services on Book-tax Differences and Investors’ Mispricing of Book-tax Differences
In this study, I investigate the effect of auditor-provided tax services (ATS) on firms’ levels of book-tax differences and investors’ mispricing of book-tax differences. The joint provision of audit and tax services has been a controversial issue among regulators and academic researchers. Evidence on whether ATS improve or impair the overall accounting quality is inconclusive as a result of the specific testing circumstances involved in different studies. Book-tax differences capture managers’ earnings management and/or tax avoidance intended to maximize reported financial income and to minimize tax expense. Therefore, my first research question investigates whether ATS improve or impair audit quality by examining the relation between ATS and firms’ levels of book-tax differences. My results show that ATS are negatively related to book-tax differences, suggesting that ATS improve the overall audit quality and reduce aggressive financial and/or tax reporting. My second research question examines whether the improved earnings quality for firms acquiring ATS leads to reduced mispricing of book-tax differences among investors. Recent studies document that despite the rich information about firms’ future earnings contained in book-tax differences, investors process such information inefficiently, leading to systematic pricing errors among firms with large book-tax differences. My empirical evidence indicates that ATS mitigate such mispricing, with pricing errors being lower among firms acquiring ATS compared with firms without ATS. Collectively, these results support the notion that ATS improve audit quality through knowledge spillover. Moreover, the improved earnings quality among firms acquiring ATS in turn helps reduce investors’ mispricing of book-tax differences.
An Analysis of the Accounting System of the Quincy Mining Company: 1846-1900
This historical study examines the evolution of the accounting system of the Quincy Mining Company between 1846 and 1900. The external financial reporting practices and internal accounting procedures of the firm are defined and interpreted in the context of three time periods that portray the formation, growth and maturation of the firm. Each period reflects unique economic and social conditions that are associated with changes in the firm's accounting system. A cross temporal analysis of these changes highlights three factors: the relationship between the accounting system and the labor force, the emergence of accounting as a control mechanism and the diminishing informational content of the firm's annual reports. Primary sources are used to document the perspectives of the Quincy management and to assess the motivations for accounting processes such as internal control, auditing procedures, responsibility centers and other managerial practices. This study addresses the inherent nature of accounting information and its relationship to the economic and social environment of an individual firm in the nineteenth century.
The Effect of SFAS No. 141 and SFAS No. 142 on the Accuracy of Financial Analysts' Earnings Forecasts after Mergers
This study examines the impact of Statements of Financial Accounting Standards No. 141 and No. 142 (hereafter SFAS 141, 142) on the characteristics of financial analysts' earnings forecasts after mergers. Specifically, I predict lower forecast errors for firms that experienced mergers after the enactment of SFAS 141, 142 than for firms that went through business combinations before those accounting changes. Study results present strong evidence that earnings forecast errors for companies involved in merging and acquisition activity decreased after the adoption of SFAS 141, 142. Test results also suggest that lower earnings forecast errors are attributable to factors specific to merging companies such as SFAS 141, 142 but not common to merging and non-merging companies. In addition, evidence implies that information in corporate annual reports of merging companies plays the critical role in this decrease of earnings forecast error. Summarily, I report that SFAS 141, 142 were effective in achieving greater transparency of financial reporting after mergers. In my complementary analysis, I also document the structure of corporate analysts' coverage in "leaders/followers" terms and conduct tests for differences in this structure: (1) across post-SFAS 141,142/pre-SFAS 141, 142 environments, and (2) between merging and non-merging firms. Although I do not identify any significant differences in coverage structure across environments, my findings suggest that lead analysts are not as accurate as followers when predicting earnings for firms actively involved in mergers. I also detect a significant interaction between the SFAS-environment code and leader/follower classification, which indicates greater improvement of lead analyst forecast accuracy in the post-SFAS 141, 142 environment relative to their followers. This interesting discovery demands future investigation and confirms the importance of financial reporting transparency for the accounting treatment of business combinations.
Environmental Accounting: The Relationship Between Pollution Performance and Economic Performance in Oil and Gas Refineries
A research study is undertaken to determine if economic incentives exist for noncompliance with regulatory standards, and if accounting related disclosure of regulatory enforcement actions is a determinant of environmental performance.
Cultural Influences on the ABC Implementation Under Thailand's Environment
This study examines the influences of culture on the implementation of a U.S.-based Activity-Based Costing (ABC) in three Thai organizations.
Loyalty and Fairness: A Study of the Influence of Moral Foundations on Auditors' Propensity to Subordinate their Judgment
Subordination of judgment is a fundamental threat to auditor objectivity. Subordination of judgment occurs when auditors agree with their superiors either in spite of or without forming their own independent judgments. Many audit procedures rely on independent, critical thinking at every level of the audit team; however, a number of studies suggest that auditors tend to agree with superiors even when a superior's views clearly run contrary to generally accepted accounting principles. While there is general agreement among scholars that subordination of judgment is "bad," very little attention has been given to moral biases that might influence an auditor's tendency to subordination of judgment, or to potential remedies that could mitigate an auditor's tendency to subordinate judgment. Moral Foundations Theory suggests that individuals tend to make intuitive, normative evaluations of situations based upon a set of personal moral biases or preferences called "moral foundations." Two specific moral foundations could influence subordination of judgment in divergent ways. The moral foundation of loyalty-respect may make agreement with a superior's views seem more acceptable than would disagreement. Meanwhile, the moral foundation of fairness may make an auditor more sensitive to the observance of rules, resulting in less subordination of judgment when a superior's views run contrary to professional rules. Social Identity Theory suggests that in-group favoritism may exacerbate subordination of judgment in general; however, strengthening an auditor's professional identity salience (PIS) could strengthen an auditor's objectivity. PIS is the temporary, heightened awareness of an auditor's identity as a professional and their role as guardian of professional rules. As a result, PIS may interact with an auditor's innate sense of fairness, resulting in less subordination of judgment than when professional identity is less salient. Results supported the hypothesis that auditors tend to subordinate their judgment to that of a superior, but not that PIS …
Earnings Management and the Independence or Interdependence of Accounting Choices: the Decision to Adopt Mandated Accounting Changes
This research examines whether firms managed earnings in the year they adopted SFAS 109, Accounting for Income Taxes (or its predecessor SFAS 96), by combining the choice to adopt SFAS 109 with other accounting choices in an interdependent rather than independent manner. Prior literature generally analyzes only one specific accounting choice, assuming that the decision is independent of other accounting procedure choices. However, it is unlikely that managers act in this manner. When attempting to achieve certain income goals, managers have numerous accounting tools available to them including the choice of accounting procedures and the exercise of judgment as to accrual amounts. This study investigates five choices consisting of: (1) the adoption of SFAS 109/96; (2) the adoption of SFAS 106; (3) the reporting of a restructuring of operations and/or a write-down of assets; (4) the reporting of asset sales; and (5) the choice of discretionary accruals. The study adopts both a portfolio and joint decision approach. The portfolio approach combines the earnings effects of the five choices into a single dependent variable and tests income smoothing, big bath, and debt hypotheses. The joint decision approach utilizes simultaneous equation methodology to investigate the interdependence of the five choices and the independent variables. The portfolio approach findings provide evidence that firms used the combined effect of the five accounting choices to smooth income in the year they adopted FAS 109/96. The results also provide support for the debt hypothesis but do not support the big bath hypothesis. The joint decision approach findings provide evidence that firms jointly determined at least two of the five accounting choices. The strong support for the income smoothing hypothesis under the portfolio approach combined with the joint significance of the individual accounting choices in the simultaneous equations suggests that firms use a multitude of accounting choices …
Two Essays on Non-GAAP Reporting
This dissertation investigates the interrelationships between a client's non-GAAP earnings disclosures, financial health (profit and loss status), and the external auditor's assessment of the client's going concern status. This dissertation comprises two essays. Essay 1 examines the informativeness and the quality of non-GAAP earnings disclosures in profit and loss firms separately. Using a large sample of non-GAAP earnings voluntarily disclosed by managers, I find that the informativeness and the quality of non-GAAP earnings vary in firms cross-classified by GAAP loss status and non-GAAP loss status. I also find that loss firms have higher quality non-GAAP exclusions relative to profit firms, although the expenses excluded by both profit and loss firms are associated with firms' future performance. Further, I posit and find that profit firms which voluntarily disclose non-GAAP losses have high-quality exclusions, while other non-GAAP reporting profit firms have low-quality exclusions. Having found that non-GAAP earnings in loss firms is opportunistic to some extent, I next study, in Essay 2, whether auditors understand the implications of low-quality non-GAAP reporting in these firms. Specifically, I examine 1) whether non-GAAP earnings disclosures are associated with the propensity of the auditor's going concern issuance to loss firms, and 2) whether non-GAAP earnings disclosures affect the accuracy of the auditor's going concern assessment. This is important because auditors often conduct audits of loss firms that disclose non-GAAP earnings, and the consequences of issuing wrong audit opinions can be severe. I find that the propensity of the auditor's going concern issuance is negatively associated with the magnitude of expense exclusions in loss firms, after controlling for determinants of going concern opinions that are derived from GAAP earnings. This finding suggests that auditors take into account information embedded in non-GAAP earnings when assessing clients' going concern status. Using bankruptcy outcome as a benchmark, I find that …
The Effect of Auditor Knowledge on Information Processing during Analytical Review
Auditors form judgments by integrating the evidence they gather with information stored in memory (knowledge). As they acquire experience, auditors have the opportunity to learn how different patterns of evidence are associated with particular audit problems. Research in experimental psychology has demonstrated that individuals with task-specific experience can match the cues they encounter with patterns they have learned, and form judgments without consciously analyzing the individual cues. Accounting researchers have suggested that auditors develop judgment templates through task-specific experience, and that these knowledge structures automatically provide decisions in familiar situations. I examined whether auditor knowledge leads to reliance on judgment templates. To test this thesis, I synthesized a theoretical framework and developed research hypotheses that predict relationships between task-specific experience (my surrogate for knowledge) and (1) measures of cognitive effort, (2) accuracy of residual memory traces, and (3) performance with respect to identifying potential problems. To test these predictions, I provided senior auditors with comprehensive case materials for a hypothetical client and asked them to use analytical procedures to identify potential audit problems. Subjects acquired information and documented their findings on personal computers using software that I developed to record their activities.
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