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The Effect of Auditor Knowledge on Information Processing during Analytical Review

Description: 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.
Date: February 1995
Creator: O'Donnell, Ed
Partner: UNT Libraries

The Effect of Different Forms of Accounting Feedback, Cost Aggregation and Pricing Knowledge on Profitability and Profit Estimation

Description: This study extends a research stream calling for further research regarding pricing and accounting feedback. Marketing executives rely heavily on accounting information for pricing decisions, yet criticize accounting feedback usefulness. To address this criticism, this research integrates the cognitive psychology and accounting literature addressing feedback effectiveness with pricing research in the marketing discipline. The research extends the scope of previous accounting feedback studies by using a control group and comparing two proxies of subject task knowledge; years of pricing experience and a measure of the cognitive structure of pricing knowledge. In addition, this research manipulates task complexity by using two different accounting systems. These systems vary in the number of cost pools used in allocating overhead, resulting in differentially projected cost and profit information. A total of 60 subjects participated in a computer laboratory experiment. These subjects were non-accountants with varying amounts of pricing knowledge. Subjects were randomly assigned to six experimental groups which varied by feedback type (no accounting feedback, outcome feedback only, or a combination of outcome and task properties feedback) and task complexity (high or low number of overhead cost pools). The subjects attempted to (1) maximize profits for a product during 15 rounds of pricing decisions, and (2) accurately estimate their profit for each round. The experimental results indicate no difference in performance between the three feedback types examined. However, increases in both subjects' pricing knowledge and the number of cost pools do influence feedback effectiveness. This study suggests that the amount of the users' task knowledge may influence the effectiveness of current accounting reports. In addition, increasing the number of cost pools in accounting systems may be beneficial for all users.
Date: May 1997
Creator: Smith, David M., 1961-
Partner: UNT Libraries

The Effects of Interactions with IRS Employees on Tax Practitioners' Attitudes toward the IRS

Description: 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.
Date: December 1992
Creator: Gutierrez, Theresa Kay
Partner: UNT Libraries

Budget-Related Prediction Models in the Business Environment with Special Reference to Spot Price Predictions

Description: The purpose of this research is to study and improve decision accuracy in the real world. Spot price prediction of petroleum products, in a budgeting context, is the task chosen to study prediction accuracy. Prediction accuracy of executives in a multinational oil company is examined. The Brunswik Lens Model framework is used to evaluate prediction accuracy. Predictions of the individuals, the composite group (mathematical average of the individuals), the interacting group, and the environmental model were compared. Predictions of the individuals were obtained through a laboratory experiment in which experts were used as subjects. The subjects were required to make spot price predictions for two petroleum products. Eight predictor variables that were actually used by the subjects in real-world predictions were elicited through an interview process. Data for a 15 month period were used to construct 31 cases for each of the two products. Prediction accuracy was evaluated by comparing predictions with the actual spot prices. Predictions of the composite group were obtained by averaging the predictions of the individuals. Interacting group predictions were obtained ex post from the company's records. The study found the interacting group to be the least accurate. The implication of this finding is that even though an interacting group may be desirable for information synthesis, evaluation, or working toward group consensus, it is undesirable if prediction accuracy is critical. The accuracy of the environmental model was found to be the highest. This suggests that apart from random error, misweighting of cues by individuals and groups affects prediction accuracy. Another implication of this study is that the environmental model can also be used as an additional input in the prediction process to improve accuracy.
Date: August 1986
Creator: Kumar, Akhil
Partner: UNT Libraries

Impact of Tax Complexity on Taxpayer Understanding

Description: The purpose of this study is to determine the effect tax complexity has on taxpayers' understanding of the tax law. The individual income tax system in the United States is based on self assessment by the taxpayer. A self assessing system requires a high level of voluntary compliance by the participants. Taxpayers who file returns on time and file correctly are considered to be in compliance with the tax law. A taxpayer who cannot understand the rules for tax reporting logically does not have the ability to comply with the law. A tax system predicated on the presumption that the average taxpayer can understand and comply with the tax rules must not become so complex that the taxpayer is forced into either seeking external help or not fully complying. The question arises, does complexity affect the ability of taxpayers to understand, and thus comply with, the tax system?
Date: December 1989
Creator: Martindale, Bobbie Cook
Partner: UNT Libraries

The Contrast-Inertia Model and the Updating of Attributions in Performance Evaluation

Description: 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 ...
Date: December 1989
Creator: Atkinson, Sue Andrews
Partner: UNT Libraries

The Effect of Cognitive Style on Auditor Internal Control Evaluation

Description: The present auditing environment involves increasing audit costs and potential legal liability. Increasing audit costs mandate methods to make the audit more efficient, while the credibility of audited financial statements depends on audit effectiveness. Internal accounting control evaluation impacts both the efficiency and effectiveness of the audit process since this judgment establishes a basis for determining the timing, nature and amount of auditing procedures to be performed. Results of previous research, however, have indicated that variance does exist in auditors' evaluations of internal controls. While individual differences have been given as an explanation of the variance, no research has successfully isolated which individual differences relate to differences in judgment. This study examined the possibility that cognitive style, defined as the mode of processing which individuals use in their perceptual activities, was an individual difference which could explain some of the variance in internal control judgments. The Myers-Briggs Type Indicator (MBTI) was used to measure the cognitive style of auditors. A second instrument, an audit judgment case, was prepared by the researcher to elicit (1) an auditor's estimate of the reliability of internal controls in a computerized payroll application, and (2) his assessment of the perceived relevance of case information to his reliability judgment. Ninety auditors attending training sessions held by six Dallas CPA firms completed the MBTI and case description. These instruments were administered by the researcher during the Summer of 1984. The participants were primarily senior-level auditors with three years' experience. The statistical methods used in this study included the t-test and ANOVA. Results of the study indicated lack of consensus in the internal control reliability estimates of the participants. Differences were noted in the information the sensing and intuitive types identified as important to their reliability estimates. The number of cues identified as important by the participants was ...
Date: August 1985
Creator: Moffeit, Katherine S. (Katherine Southerland)
Partner: UNT Libraries

Professional Commitment, Organizational Commitment, and Organizational-Professional Conflict in the Internal Audit Function Model: Development and Test

Description: This dissertation is a descriptive, exploratory examination of professional commitment, organizational commitment, and conflict between those commitments in the internal audit profession. That conflict has been suggested in prior studies as the source of dysfunctional outcomes such as increased role stress, high turnover, decreased job satisfaction, and the exercise of improper judgment leading to audit failures. The descriptive aspect of this study deals with the development of a more comprehensive structural model of the factors and relationships involved in commitment and conflict than has been developed by previous research dealing with accountants. The exploratory aspect deals with the testing and refinement of the developed model utilizing the internal audit profession as the field of examination. The model developed in this study is derived from the synthesis of factors suggested by role theory, the concept of side bets, the cosmopolitan-local construct, and the concept of commitment as a process. This research utilizes a questionnaire administered to 205 practicing internal auditors in order to test 30 hypothesized relationships. Path analysis is used to determine the significant direct relationships between variables with a process of theory trimming being conducted in order to produce more parsimonious structural models. Indirect relationships between significant variables are identified and their redundant or suppressive nature determined. Explanations of these suppressive or redundant relationships are provided based on the theoretical considerations identified above. Such a determination and explanation of the redundant and suppressive indirect relationships involved in the commitment-conflict relationship has not been accomplished in earlier studies of the subject. Although the procedures used here do not support causal conclusions, the findings of this study indirectly provide evidence that conflict between the two commitments in the internal audit area is not to be considered inherent. The findings also suggest a possible undesirable relationship between organizational formalization and professional commitment.
Date: May 1988
Creator: Quarles, Ross
Partner: UNT Libraries

Venture Capital Investment and Protocol Analysis

Description: This study used protocol analysis to identify key variables in the venture capital investment decision-making process. The study used a fictional business plan which was based on six actual business plans. This fictional business plan was presented to ten venture capitalists who were asked to review it to decide whether to interview the investee. The protocols obtained from these subjects were analyzed to determine patterns within the subjects' review. The sections of the business plan which were commonly reviewed first were the deal structure, the executive summary, and the management section. The management section was used by the greatest number of subjects. The market section was used the greatest number of times. The data were also organized by type of operators used in each subject's protocols. Information Search/Retrieval operators were most common, followed by Task Structuring/Set Goal operators. When classified into the four major categories of Task Structuring/Set Goal, Information Acquisition, Analytical/ Inferential, and Choice operators, Analytical/Inferential operators were used most frequently. Choice operators were least used. The phrases were analyzed by the relevant section in the business plan. The market received the greatest number of references, followed by references to the product and to management. However, when references to the income statement and balance sheet were combined as phrases relevant to the financial statements, the financial statements were referred to more frequently than the product or the people. The subjects appeared to use an unidentified choice program within which certain models could be identified as subroutines. The subjects used an elimination-by-aspects model to screen the business plan. If the business plan met the criteria within the elimination-by-aspects model of the subject, the subject used an additive/nonlinear model for the remainder of the review. The results of this study indicate that financial statements provide information important in the venture capital ...
Date: December 1987
Creator: Pfeffer, Mary Graves
Partner: UNT Libraries

A Comparative Study of Internal and External Auditors' Judgment of Internal Auditor Independence

Description: The purpose of this study is to provide empirical evidence relevant to perceptions of internal auditor independence. Specifically, this study investigates how the auditor practitioners (both internal and external auditors) perceive the importance of five selected factors that characterize the organizational settings of an internal audit department. Role theory is the frame of reference used to develop the conceptual model for this study in which the judgment of internal auditor independence is viewed as the role perception of internal auditors. A modified version of the Brunswik's lens model was developed to provide "paramorphic" representation of judgment of independence. The research methodology of this study is based upon a laboratory experiment in which a replicated factorial design was used to elicit the subjects' judgments of independence. The data collected from this experiment were analyzed by three statistical methods: conjoint measurement, multiple regression, and cluster analysis. The major findings follow. First, the five selected factors were not perceived as equally important by the subjects. In general, internal auditor's scope of audit. scope o^ service, and reporting level were perceived as more important than adequacy of organizational support. and formalization of audit policies. Second, the two groups of auditors disagree, significantly, on the relative importance of scope of internal audit service. Third, while large individual differences existed on the relative importance of the five selected factors, the degree of judgment consensus, in general, is high within each auditor group. Fourth, the internal auditor's perceived role conflict and role ambiguity were inversely related to his perceived level of professional autonomy. Finally, the internal auditors' judgments were not notably affected by the perceptions of their own organizational environment. However, as evidenced by the different types of experienced role conflict and ambiguity, the nature of these auditors' environment varied considerably, Given the above findings, the following ...
Date: May 1986
Creator: Pei, Ker-Wei
Partner: UNT Libraries

An Analysis of Confidence Levels and Retrieval of Procedures Associated with Accounts Receivable Confirmations

Description: The study addresses whether differently ordered accounts receivable workprograms and task experience relate to differences in judgments, confidence levels, and recall ability. The study also assesses how treated and untreated inexperienced and experienced auditors store and recall accounts receivable workprogram steps in memory in a laboratory environment. Additionally, the question whether different levels of experienced auditors can effectively be manipulated is also addressed.
Date: December 1993
Creator: Rogers, Violet C. (Violet Corley)
Partner: UNT Libraries

A Process Analysis of Lenders' Use of FAS 95 Cash Flow Information

Description: This study uses concurrent verbal protocol analysis to examine the decision processes of lenders as they evaluate the financial information of a loan applicant. Of specific interest is the lenders' use of Statement of Financial Accounting Standards Board No. 95 (FAS 95), Statement of Cash Flows, in that decision process.
Date: May 1994
Creator: Reither, Cheri L. (Cheri Lynn)
Partner: UNT Libraries

Examination of the Effects of Experience and Missing Information on Tax Preparer Judgment

Description: 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 ...
Date: August 1996
Creator: Lewis, Judy D. (Judy Dianne)
Partner: UNT Libraries

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

Description: 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.
Date: August 1988
Creator: Campbell, Alan D.
Partner: UNT Libraries

Balanced Scorecards: An Experimental Study of the Effects of Linking the Evaluators' and Subordinates' Balanced Scorecards on Performance Evaluation.

Description: 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.
Date: December 2008
Creator: Kang, Gerui
Partner: UNT Libraries