bluuebunny/crossref_metadata_2025 huggingface dataset:
Audit and Nonaudit Fees and the Market's Reaction to Earnings Announcements
Authors: Higgs Julia L. , Skantz Terrance R.
Published: April 2008

Effective February 05, 2001, publicly traded companies are required to disclose audit and nonaudit fees paid to their external auditors. These fee data have been used to test whether auditor independence is impaired when the external auditor provides nonaudit services to a client, usually by examining whether certain earnings characteristics are related to nonaudit fees in ways that suggest impairment. This paper follows in that tradition by testing whether the earnings response coefficient (ERC), a proxy for earnings quality, is associated with engagement profitability. Residual fees derived from a two-stage regression model that prices audit and nonaudit services simultaneously are used to proxy for engagement profitability. If the market perceives abnormally profitable engagements as a threat to auditor independence, then we would expect the ERC to be lower for firms with positive fee residuals. The paper examines the residual fee-ERC relation for annual earnings announcements immediately before and after first-time fee disclosure. We report results for alternative measures of unexpected earnings (I/B/E/S forecast errors and deviations from a seasonal random walk), different formulations of residual fees (as a dichotomous and continuous variable) and different samples. For total fees and audit fees, there is a positive association between ERCs and the level of residual fees. For nonaudit fees, there is only one combination of unexpected earnings and residual fee formulation where we observe a significantly negative association between ERCs and residual fees. The findings for audit fees are consistent with a market that interprets abnormally high audit fees as a signal of a firm's commitment to high earnings quality. The restrictive conditions under which we find a negative association between nonaudit fees and ERCs provide limited support for the contention that perceived auditor independence is impaired by abnormally high nonaudit fees.
Homogenous Industries and Auditor Specialization: An Indication of Production Economies
Authors: Cairney Timothy D. , Young George R.
Published: April 2008

In this study, we examine the association between industry homogeneity and auditor specialization. We find a significant association between our proxies for industry homogeneity (change in industry-member operating expenses) and auditor specialization (auditor concentration and auditor focus) after controlling for extent of industry regulation, litigiousness, growth, client-industry concentration, and the number of industry members. The positive relation between our specialist proxies and industry homogeneity indicates that auditors seek additional firms to audit in industries in which members have similar operations. This suggests that auditor specialization provides a cost-based competitive advantage because the cost of developing expertise is spread over more clients. Thus, in contrast to recent criticisms of auditor concentration, specialization results in more efficient audits.
SOX Section 404 Material Weakness Disclosures and Audit Fees
Authors: Raghunandan K. , Rama Dasaratha V.
Published: April 2008

Section 404 of the Sarbanes-Oxley Act and Auditing Standard No. 2 (PCAOB 2004) require management and the auditor to report on internal controls over financial reporting. Section 404 is arguably the most controversial element of SOX, and much of the debate around the costs of implementing section 404 has focused on auditors' fees (Ernst & Young 2005). In this paper, we examine the association between audit fees and internal control disclosures made pursuant to section 404. Our sample includes 660 manufacturing firms that have a December 31, 2004 fiscal year-end and filed the section 404 report by May 15, 2005. We find that the mean (median) audit fees for the firms in our sample for fiscal 2004 is 86 (128) percent higher than the corresponding fees for fiscal 2003. Audit fees for fiscal 2004 are 43 percent higher for clients with a material weakness disclosure compared to clients without such disclosure; however, audit fees for fiscal 2003 are not associated with an internal control material weakness disclosure (in the 10-K filed following fiscal 2004). We also find that the association between audit fees and the presence of a material weakness disclosure does not vary depending on the type of material weakness (systemic or non-systemic).
Peer-Based Approach for Analytical Procedures
Authors: Hoitash Rani , Kogan Alexander , Vasarhelyi Miklos A.
Published: April 2008

This study extends the existing research in analytical procedures by allowing for learning from contemporaneous information transfers among peer companies. We introduce an approach for selecting peers for each client and perform tests to examine the contribution of peers' information to the performance of analytical procedures. We find that peer data are imperfect substitutions for contemporaneous firmspecific variables when such variables are not in error. However, we observe that contemporaneous peer specific data are especially beneficial when coordinated errors exist in multiple accounts. We demonstrate that when errors are seeded into two contemporaneous accounts, peer models perform better at detecting errors. We also find that fast-changing companies experience inferior prediction and error detection accuracy, and that larger companies experience more accurate prediction, lower Type II errors, and higher Type I errors. Additionally, we observe that significant improvements in the performance of analytical procedures are associated with larger clients indicating that auditors of larger companies can potentially benefit more from the use of peer data.
The Relative Importance of Management Fraud Risk Factors
Authors: Apostolou Barbara A. , Hassell John M. , Webber Sally A. , Sumners Glenn E.
Published: April 2008

In an exploratory study, we report how 140 auditors rate the relative importance of 25 risk factors (red flags) identified in SAS No. 82. The Analytic Hierarchy Process (AHP) is used to produce a decision model for each subject, and mean decision models are reported for groups of subjects. The results indicate that management characteristics and influence over the control environment red flags were approximately twice as important as operating and financial stability characteristics red flags and about four times as important as industry conditions red flags. The three single most important red flags account for almost 40 percent of the total decision weight. A particularly interesting finding is that the mean decision models of 43 Big 5 auditors, 50 regional/localfirm auditors, and 47 internal auditors were not significantly different from each other.
Mitigating the Common Information Sampling Bias Inherent in Small-Group Discussion (Retracted)
Authors: Hunton James E.
Published: April 2008

Gathering problem-relevant information through small-group discussion is one method for initial decision making. A collective information sampling (CIS) model offered by Stasser and Titus (1987) suggests that two inherent biases, the common information sampling bias and a related recency effect, act in concert to suboptimize the efficacy of group discussion. The objectives of this exploratory study are to refine the predictive validity the CIS model and test a group intervention technique designed to mitigate the common information sampling and recency biases.

Analysis of the evidence from a laboratory and field experiment suggests that the refined CIS model accurately predicted the distribution of information items entered into group discussion. While the control groups exhibited both the common information sampling bias and primacy effect, these biases were mitigated in the treatment groups after receiving an intervention technique called Shared Cognition Awareness Training (SCAT). Results obtained from this exploratory research indicate that the refined CIS model can offer researchers a useful prediction tool and the SCAT intervention technique presents a relatively straightforward means of invoking a more complete exchange of potentially valuable information during small-group discussion.
Multiple Dimensions of Organizational Commitment: Implications for Future Accounting Research
Authors: Ketchand Alice A. , Strawser Jerry R.
Published: April 2008

Organizational commitment (OC) is a concept that seeks to capture the nature of the attachments formed by individuals to their employing organizations. Beginning with Porter et al. (1974), prior researchers have attempted to identify what factors influence the formation of OC in individuals and how OC (once formed) influences important organizational consequences. Recent research in the industrial/organizational psychology and organizational behavior literature has identified the existence of multiple dimensions of OC and found different relationships between these dimensions and important organizational consequences. However, with some isolated exceptions (Ketchand and Strawser 1998; Kalbers and Fogarty 1995; Caldwell et al. 1990), accounting research has examined only one dimension of OC. This manuscript summarizes previous research in the industrial/organizational psychology, organizational behavior, and particularly accounting literature regarding the identification of various dimensions and subdimensions of OC and the relationships of these dimensions and subdimensions with important antecedents, correlates, and consequences. In light of these findings, suggestions are provided for accounting researchers to evaluate: (1) the role of multiple dimensions of OC in influencing attachment to the organization, (2) how changes in the public accounting work environment affect the role of OC, and (3) how OC research can provide practical results for public accounting firms.
A Research Note concerning Practical Problem-Solving Ability as a Predictor of Performance in Auditing Tasks
Authors: Bierstaker James Lloyd , Wright Sally
Published: April 2008

The ability to recognize when there is a variety of solutions to a particular situation has been shown to be important to success in the accounting profession (Baril et al. 1998). Recently, a measure of ability has been developed in psychology that focuses on “practical” problemsolving ability (PPSA) (Devolder 1993). From a theoretical standpoint, relatively little is known about the association between ability and performance in accounting tasks. Thus, the purpose of this study is to investigate if PPSA predicts performance on two important auditing tasks, internal-control-evaluation and analytical procedures. Participants in this study (66 auditors and 78 accounting students) assessed vignettes of real-world financial problems and provided solutions to these problems. Participants also solved an analytical procedures and internal-control-evaluation task. The results suggest that PPSA was useful in predicting the performance of both accounting students and experienced auditors on both analytical procedures and internal-control evaluation. This is the first accounting study to examine PPSA. Practically, results suggest it may be important to attract students with high PPSA into the accounting profession.
An Analysis of Statistical Power in Behavioral Accounting Research
Authors: Borkowski Susan C. , Welsh Mary Jeanne , Zhang Qinke (Michael)
Published: April 2008

Attention to statistical power and effect size can improve the design and the reporting of behavioral accounting research. Three accounting journals representative of current empirical behavioral accounting research are analyzed for their power (1−β), or control of Type II errors (β), and compared to research in other disciplines. Given this study's findings, additional attention should be directed to adequacy of sample sizes and study design to ensure sufficient power when Type I error is controlled at α = .05 as a baseline. We do not suggest replacing traditional significance testing, but rather augmenting it with the reporting of β to complement and interpret the relevance of a reported α in any given study. In addition, the presentation of results in alternative formats, such as those suggested in this study, will enhance the current reporting of significance tests. In turn, this will allow the reader a richer understanding of, and an increased trust in, a study's results and implications.
The Effects of Flexible Work Arrangements on Stressors, Burnout, and Behavioral Job Outcomes in Public Accounting
Authors: Almer Elizabeth Dreike , Kaplan Steven E.
Published: April 2008

The majority of public accounting firms now offer flexible work arrangements to their professional employees. Presumably these arrangements help accommodate employee needs to manage work and family demands, while also improving job satisfaction and retention. The ability of flexible work arrangements to achieve these goals has received little attention. The current paper addresses this issue by reporting the results of a survey of CPAs working under a flexible work arrangement and a similar group of CPAs working under a standard arrangement but who appear to be plausible candidates for a flexible work arrangement. The survey elicited information about several key employment variables: job-related stressors (e.g., role conflict, role ambiguity, and role overload), burnout tendencies (e.g., emotional exhaustion, reduced personal accomplishment, and depersonalization) and behavioral job outcomes (e.g., job satisfaction and turnover intentions).

Results show that CPAs on flexible work arrangements report higher job satisfaction and lower turnover intentions than those on a standard work arrangement. CPAs on flexible work arrangements generally have lower levels of burnout and stressors, though the reduced personal accomplishment burnout dimension may be conditioned upon whether the CPA has a mentor. Finally, for professionals switching to a flexible work arrangement, respondents indicated a significant improvement in job satisfaction and turnover intentions as well as some decline in burnout and stressors.
Workplace Environment in a Professional Services Firm
Authors: Hooks Karen L. , Higgs Julia L.
Published: April 2008

This paper is based on survey results from 1,055 partners and employees of an international professional services firm regarding the workplace environment. Data collected address influences on work schedules, work time and locations, work with technology, and choices to work from home. The results suggest that client, organizational, and personal factors influence the work environment, and that the use of technology enables flexibility. The survey results are discussed referencing concepts of motivation, productivity, supervision, and control; empowerment and implications for accounting research are proposed.
Decision Aids for Generating Analytical Review Alternatives: The Impact of Goal Framing and Audit-Risk Level
Authors: Mueller Jennifer M. , Anderson John C.
Published: April 2008

An auditor generating potential explanations for an unusual variance in analytical review may utilize a decision aid, which provides many explanations. However, circumstances of budgetary constraints and limited cognitive load deter an auditor from using a lengthy list of explanations in an information search. A two-way between-subjects design was created to investigate the effects of two complementary approaches to trimming down the lengthy list on the number of remaining explanations carried forward into an information search. These two approaches, which represent the same goal (reducing the list) but framed differently, are found to result in a significantly different number of remaining explanations, in both low- and high-risk audit environments. The results of the study suggest that the extent to which an auditor narrows the lengthy list of explanations is important to the implementation of decision aids in analytical review.
The Effect of the Busy Season Workload on Public Accountants' Job Burnout
Authors: Sweeney John T. , Summers Scott L.
Published: April 2008

Anecdotal evidence suggests that the escalated workload of the public accounting “busy season” is a major contributor to employee “burnout.” Academic research on the psychological impact of the busy season workload, however, is virtually absent from the accounting literature. We partially address this void by employing a longitudinal design and structural equation modeling to examine the causal impact of the busy season workload on public accountants' job burnout—a dysfunctional stress syndrome. Prior to the start of the busy season and again at its end, we measured hours worked, role stressors, and job burnout for a sample of public accountants from a national firm. The results of our analyses indicate that public accountants' pre-busy season burnout was not directly affected by hours worked, even though subjects reported an average workload of 49 hours per week. This result implies that public accountants may develop a relatively high workload threshold before it directly impacts their job burnout. During the busy season, our subjects' weekly workload increased to approximately 63 hours. The additional workload burden introduced by the busy season caused job burnout for our sample of public accountants to rise to levels rarely reported in the research literature.
An Empirical Examination of Competing Theories to Explain the Framing Effect in Accounting-Related Decisions
Authors: Chang C. Janie , Yen Sin-Hui , Duh Rong-Ruey
Published: April 2008

The purposes of this study are to explore framing effects in a managerial accounting decision context and to test the explanatory power of prospect theory and two competing theories, fuzzy-trace theory and probabilistic mental models, on such effects. In Experiment 1, 86 undergraduate students made a choice between two alternatives in a managerial decision problem that illustrates a classic, Asian disease-type business scenario. Results show that the subjects committed the framing effect bias and that prospect theory, fuzzy-trace theory, and probabilistic mental models all predict the bias. In Experiment 2, a business variant of the Asian disease problem was designed to distinguish among the explanatory abilities of these theories in an accounting context. One hundred eighty-five undergraduate students participated in the experiment. Results of Experiment 2 indicate that the fuzzy-trace theory provides additional power to explain the framing effect. Hence, accounting professionals can design better approaches to reporting/presenting financial information that will help managers alleviate the framing effect in decision making.
An Investigation of the Theory of Planned Behavior and the Role of Moral Obligation in Tax Compliance
Authors: Bobek Donna D. , Hatfield Richard C.
Published: April 2008

In this study, Ajzen's (1991) Theory of Planned Behavior is used as a theoretical framework to extend prior research examining taxpayers' compliance intentions. Specifically, moral obligation is added to the theory's explicit constructs: attitude, subjective norms (i.e., peer influence), and perceived behavioral control. Moral obligation was expected to be a moderating influence (Reckers et al. 1994), and therefore interaction effects were hypothesized.

The study was conducted in two phases. In the first phase, a procedure was used to determine the outcome beliefs that underlie taxpayers' attitudes. These beliefs were incorporated into an attitude measure used in the second phase in which subjects responded to two of three tax-compliance scenarios. The data from phase two were analyzed using multinomial logistic regression. The results indicate that the model including moral obligation, provides a significant explanation of tax noncompliance in the three different scenarios. However, the interaction effect of moral obligation appears to be more complex than the relationship suggested by Reckers et al. (1994).
The Effects of Hurdle Rates on the Level of Escalation of Commitment in Capital Budgeting
Authors: Cheng Mandy M. , Schulz Axel K-D. , Luckett Peter F. , Booth Peter
Published: April 2008

This study proposes that organizations should consider project hurdle rates, as part of their control system design, to reduce escalation of commitment behavior in managers. In particular, we empirically examined the escalation of commitment tendencies in managers receiving organization-set, self-set, and no hurdle rates.

Consistent with prior expectations, we found self-set hurdle rates to be an effective control mechanism resulting in significantly lower levels of escalation of commitment. Contrary to expectations, however, organization-set hurdle rates were not effective. Self-set hurdle rates also resulted in significantly higher cut-off rates compared to the average return of the investment portfolio held by the managers.

As escalation of commitment has been recognized as a serious potential problem in organizations, the use of self-set hurdle rates is a step toward reducing the level of escalation tendencies in managers.
Internet-Based Experiments: Prospects and Possibilities for Behavioral Accounting Research
Authors: Bryant Stephanie M. , Hunton James E. , Stone Dan N.
Published: April 2008

The emerging technology of Internet-based experiments offers behavioral accounting research (BAR) new possibilities for obtaining large sample sizes, providing world-wide access to previously hard-to-reach participants (e.g., CFOs, audit partners, and financial analysts) and exploring new research questions. However, the validity characteristics of Internet-based experiments differ from previous BAR technologies. Herein, we review existing BAR Internet-based experiments, describe how to create and run Internet-based experiments, overview emerging literature on the validity of Internet-based experiments, and highlight several areas where the use of Internet-based experimentation offers accounting behavioral researchers new possibilities for exploring previously uninvestigated research questions.
The Role of Cognitive and Affective Conflict in Early Implementation of Activity-Based Cost Management
Authors: Chenhall Robert H.
Published: April 2008

Activity-based cost management (ABCM) can provide improved information for strategic decisions such as product planning and cost management. While ABCM has been increasingly adopted there is evidence that, for some organizations, promised gains have not eventuated. It appears that the main difficulties in adopting ABCM derive from implementation issues rather than the technical design of the systems. This study examines the role of conflict in ABCM implementation. It is argued that attention to ABCM behavioral implementation enhances cognitive conflict that is then associated with successful ABCM applications, specifically the usefulness of ABCM for product planning and cost management. Lack of attention to these factors generates affective conflict that is associated with less successful applications. Results of an empirical study of 56 managers indicated that cognitive conflict intervenes between ABCM behavioral implementation factors and beneficial outcomes. However, while there were significant negative associations between affective conflict and beneficial outcomes, there were no significant associations between behavioral implementation factors and affective conflict.
Clients' Expectations on Audit Judgments: A Note
Authors: Iyer Venkataraman M. , Rama Dasaratha V.
Published: April 2008

Audited financial statements can be viewed as the product of negotiations between a company's management and its auditor. Relative power of these two parties is a major factor that determines the outcome of the negotiation. This study examines the impact of auditor tenure, importance of a client to an audit partner, nonaudit purchases, and prior audit firm experience of client personnel on client perceptions about their ability to persuade the auditor in the context of an accounting disagreement. We obtained responses to a survey from 124 CPAs in industry who are employed as CEOs, CFOs, controllers, or treasurers. Our results indicate that respondents from companies with short auditor tenures were somewhat more likely to indicate that they could persuade the auditor to accept their (client's) position in case of a disagreement. This finding is consistent with the argument that auditors are susceptible to influence in the early years as they are still in the process of recouping start-up costs, but is not consistent with concerns expressed by legislators and others that long auditor tenures will adversely affect audit quality. Respondents who believed their business was more important for the audit partner were also more likely to believe that they could persuade the auditor. However, the purchase of nonaudit services and prior audit experience were not related to client's perceptions about their ability to persuade the auditor.
A Theoretical Framework of the Relationship between Public Accounting Firms and Their Auditors
Authors: Almer Elizabeth Dreike , Higgs Julia L. , Hooks Karen L.
Published: April 2008

The behavior of auditors in the context of their employment by public accounting firms has received significant attention in the accounting literature. The current article extends this literature by providing a framework that identifies what auditing professionals contribute and receive as a result of their work efforts, as well as related influences. Using agency theory modified with fundamental ideas from the sociology of professions literature, we develop a model of the auditor-public accounting firm employment relationship. This framework is grounded in a timely, contextually rich description of the public accounting work environment, and the pressures and incentives faced by auditors. Propositions for future research are suggested that arise from understanding the auditor-firm relationship.
The Role of Social Influences in Using Accounting Performance Information to Evaluate Subordinates: A Causal Attribution Approach
Authors: Xu Yin , Tuttle Brad M.
Published: April 2008

One important role of accounting information is to provide objective information to assist decision makers in evaluating the performance of their subordinates. Yet whether decision makers use accounting data in an objective fashion, independent of interpersonal factors, is an open question. The purpose of this study is to investigate whether similarities in work style (innovator versus adaptor) between a manager and a subordinate influence the manager's causal attributions and subsequent performance evaluation for the subordinate, given accounting performance indicators.

The study is conducted in an experimental setting and the research analysis used is developed within the framework of a structural equation model. The results of the study provide initial evidence that interpersonal factors such as work style similarity and personal liking moderate how supervisors use accounting information when they make performance evaluation decisions. The more similar work style between supervisor and subordinate, the more the supervisor likes the subordinate. This, in turn, directly influences what the supervisor believes is the cause of the subordinate's performance.
Alternative Measures of Managers' Performance, Controllability, and the Outcome Effect
Authors: Ghosh Dipankar
Published: April 2008

This research examines whether alternative performance evaluation measures of managers (return of investment, sales per square foot, customer satisfaction, and employee satisfaction) with varying controllability increases or decreases the extent of the outcome effect and whether asking the evaluator to assess the evaluatee's controllability of these measures prior to the evaluation mitigates the effect. The outcome effect occurs when outcome knowledge systematically influences the evaluator's assessment of the evaluate, irrespective of the quality of his or her initial decision resulting in the outcome. The experimental results reveal that the outcome effect increased as the controllability of the retail store manager's outcome measure increased, with the increase being more for nonfinancial measures than for financial measures. The results also show that controllability assessment of the outcome measures prior to the actual evaluation reduced the outcome effect across all measures.
Accountants' Commitment to Their Profession: Multiple Dimensions of Professional Commitment and Opportunities for Future Research
Authors: Hall Matthew , Smith David , Langfield-Smith Kim
Published: April 2008

Professional commitment (PC) refers to attachments that individuals form to their profession and has been linked to outcomes such as improved job satisfaction and reduced likelihood of leaving the profession (Harrell et al. 1986; Meixner and Bline 1989). Recent arguments in the organizational behavior literature have emphasized the importance of developing a more complete understanding of PC (Irving et al. 1997; Meyer and Allen 1997). Research has demonstrated empirically the existence of multiple dimensions of PC and found that they relate differently to important affective and behavioral outcomes (Meyer et al. 1993; Irving et al. 1997). Despite these developments, no published studies have examined the existence and/or effects of multiple dimensions of accountants' PC. This paper reviews the literature to identify important antecedents and outcomes of accountants' PC. Opportunities for future research that incorporate a multidimensional view of accountants' PC are presented.
Field-Based Research in Accounting: Accomplishments and Prospects
Authors: Merchant Kenneth A. , Stede Wim A. Van der
Published: April 2008

This paper tabulates the field-based research in accounting that was published in the period 1981–2004 and discusses the use of this method and its contributions. It shows that the number of field research publications has grown significantly over this period but that use of the method is primarily confined to management accounting topics. The paper describes the major impacts that field research has had on the management accounting field, particularly in identifying leading edge practices and enhancing their scholarly exploration, thereby contributing to our understanding of the phenomena we research and linking our research with practice. We also suggest that similar contributions might be made if researchers in other fields employed field research methods more.
Effects of Discussion of Audit Reviews on Auditors' Motivation and Performance
Authors: Miller Cathleen L. , Fedor Donald B. , Ramsay Robert J.
Published: April 2008

One important purpose of audit review is to provide feedback and onthe-job training (Libby and Luft 1993), but we know very little about the effectiveness of review as a feedback mechanism. Firms have recently been moving to including discussion of performance and audit findings as part of the review procedure (Rich et al. 1997). The purpose of this field survey is to explore whether the addition of such discussion to the review feedback process enhances preparers' subsequent performance. By examining survey responses from both reviewers and preparers from actual audit engagements, we find that incorporating discussion of performance with written review notes does enhance preparers' motivation to improve performance. However, experience moderates the effect of discussion on performance improvement as perceived by the reviewer. While discussion resulted in better performance for less experienced auditors, it appears to actually diminish performance improvement for more experienced preparers.
Stock Recommendations as a Source of Bias in Earnings Forecasts
Authors: Eames Michael J. , Glover Steven M. , Kennedy Jane Jollineau
Published: April 2008

Recent scandals and controversies have focused substantial attention on the behavior of financial analysts. Responses such as the Sarbanes-Oxley Act, new regulations at securities exchanges, and massive legal settlements are consistent with the perception that analysts' research and stock recommendations exhibit significant self-serving bias. While anecdotal and legal evidence support the allegations that some analysts have intentionally mislead the investing public, recent archival research suggests unintentional cognitive processes also contribute to systematic bias in analysts' forecasts (Eames et al. 2002). However, studies based on stock-market data cannot distinguish between unintentional cognitive processes and intentional bias stemming from economic incentives (e.g., trade boosting). In a laboratory experiment we eliminate economic incentives and find that cognitive processes unintentionally lead to earnings forecast bias. Our results suggest that recent regulations and policy changes by Congress, the Securities and Exchange Commission, exchange markets, and brokerage firms will not totally eliminate bias in analysts' earnings forecasts.
Development of an Integrated Course in Accounting: A Focus on Environmental Issues
Authors: Grinnell D. Jacque , Hunt Herbert G.
Published: April 2008

Environmental issues provide a unique, timely, and important focus for an integrated course in accounting and demonstrate how accounting information is, or can be, used to support corporate environmental strategy and assess environmental performance. This type of course offers an opportunity to add value to the educational experience of both accounting and nonaccounting majors. In this article, we describe the development and structure of one such course, discuss our experiences in offering it, and summarize the perceived benefits and difficulties associated with this endeavor. Overall, we conclude that, despite some challenges in designing and offering this type of course, the benefits are significant from both instructional and professional development points of view. Furthermore, the course attempts to achieve several of the objectives laid out a decade ago by the Accounting Education Change Commission (AECC) and more recently, by the American Institute of Certified Public Accountants (AICPA) in its forward-looking CPA Vision Project. Perhaps most importantly, this course helps to counter the tendency, by both students and faculty, toward disciplinary insularity, a concern prominently noted by Patten and Williams (1990).
Developing Students' Technical Knowledge and Professional Skills: A Sequence of Short Cases in Intermediate Financial Accounting
Authors: Ashbaugh Hollis , Johnstone Karla M.
Published: April 2008

Below is a series of three cases that require you to research, analyze, and write about emerging financial accounting issues or extensions of existing technical pronouncements. Specifically, the cases focus on accounts receivable valuation, environmental liabilities reporting, and the accounting for purchased in-process research and development. Throughout the three-case sequence, the complexity of the technical accounting issues and the research, analytical, and written communication requirements are gradually increased in order to facilitate the development of your technical knowledge and professional skills.
The Motivation for Collaborative Discovery Learning Online and Its Application in an Information Systems Assurance Course
Authors: Borthick A. Faye , Jones Donald R.
Published: April 2008

This paper develops the motivation for collaborative discovery learning online and explains its application in a master's course in information systems assurance. In discovery learning, participants learn to recognize a problem, characterize what a solution would look like, search for relevant information, develop a solution strategy, and execute the chosen strategy. In collaborative discovery learning, participants, immersed in a community of practice, solve problems together. In collaborative discovery learning online, participants seek the knowledge they need and solve problems together in a virtual environment. For this purpose, virtual environments are characterized by web-based access to resource materials and participants' work and web-based discussions occurring in real time (synchronously). This approach to learning prepares students for work environments in which new problems are the norm and professionals work collaboratively to solve them in virtual spaces. The paper makes a case for the course being more effective than lecture-based instruction because of its use of collaborative discovery learning online, more accessible because participants may be anywhere they have Internet access, and more affordable if the development and delivery efforts could be leveraged across multiple universities.
An Approach to Organizing a Management Accounting Curriculum
Authors: Brewer Peter C.
Published: April 2008

In recent years, numerous tools such as activity-based costing, the balanced scorecard, and target costing have gained prominence within business organizations (Kaplan and Cooper 1998; Kaplan and Norton 1996; Ansari et al. 1997). Nonetheless, traditional management accounting practices such as standard costing and contribution margin analysis continue to be prevalent (Szendi and Elmore 1993). The traditional topics, when coupled with all the recent advancements, create a sizable body of knowledge that presents a challenge to management accounting educators, who bear the responsibility of organizing this subject matter into a coherent whole. In an effort to aid professors wrestling with this challenge, this article presents a new framework for organizing an entire management accounting curriculum. The article also includes one possible application of the framework that is being used at Miami University. The benefits of adopting the framework include: (1) less redundancy within the curriculum, (2) logical distinctions between the topics taught in each course, and (3) more opportunities for in-depth coverage of particular content areas.
Perry Drug Stores, Inc.: Accounting and Control Issues for Inventory in a Retail Environment
Authors: Knapp Michael C. , Knapp Carol A.
Published: April 2008

This case recounts an actual sequence of events that unfolded in the early 1990s. The facts of this case were drawn primarily from two enforcement releases issued by the Securities and Exchange Commission (viz., AAER Nos. 1015 and 1037) and from the 1991–1994 annual reports of Perry Drug Stores, Inc. In 1992, Perry Drug Stores ranked as the 14th largest drug store chain in the nation. During that year, Perry's management discovered that the company's inventory was significantly overstated. Physical inventories of Perry's more than 200 retail outlets revealed a $20.3 million inventory shortage, representing 14 percent of the company's book inventory. The company's year-end book inventory figure was an estimate yielded by the gross profit method. Perry's executives decided not to record a book-to-physical inventory adjustment to recognize the shortage during fiscal 1992. Perry's independent auditors were aware of this decision and did not object to it. When the company's 1993 physical inventory confirmed the inventory shortage, Perry wrote off the $20.3 million shortfall, treating it as a change in accounting estimate. Perry's audit firm approved this financial statement treatment of the write-off. This case focuses on inventory accounting and control issues, in particular application of the gross profit method. In addition, the case introduces auditing issues relevant to inventory.
“Glass Walls” in Academic Accounting? The Role of Gender in Initial Employment Position
Authors: Collins Denton L. , Reitenga Austin , Collins Allison B. , Lane Scott
Published: April 2008

This research examines whether gender interacts with quality of doctoral training to influence the likelihood of new accounting faculty candidates obtaining initial employment at institutions with accounting doctoral programs during the period from 1991 to 1997. Using data from Hasselback's Accounting Faculty Directory, we find that female candidates trained at top-tier and bottom-tier doctoral programs are equally likely as male candidates to attain appointments at doctoral schools, while female candidates trained at middle-tier doctoral programs are less likely than their male counterparts to obtain such positions. These results are robust to the use of different external doctoral program rankings to partition our data and, based on several sensitivity tests, our results do not appear to be the result of self-selection.
Baywatch International: A Case Linking Financial-Reporting, Business, and User Decisions
Authors: Phillips Fred , Morris Kevin , Zvinakis Kristina
Published: April 2008

Baywatch International is a hypothetical company that manufactures figure-enhancement products—a rapidly growing industry that is featured frequently in Fortune and on CNNfn. The executives at Baywatch are making financial-reporting decisions pertaining to the company's receivables, inventories, loss contingencies, and capital asset depreciation. These decisions require technical knowledge of fundamental topics covered in introductory financial accounting courses, as well as an appreciation for relationships among financial-reporting, business, and user decisions. Consideration of the implications for financial statement analysis, earnings management, and financial-reporting ethics also is encouraged.
Experimental Market Behavior and Accounting Students' Knowledge of Permanent Earnings
Authors: Ackert Lucy F. , Church Bryan K. , Turner Deborah H.
Published: April 2008

We conduct eight experimental asset markets to investigate accounting students' abilities to apply knowledge of “permanent earnings” in a market setting. Across the eight markets, asset value is a function of permanent earnings. Initially, we conduct three markets with participants recruited from an introductory financial accounting course, all of whom successfully completed the course. We find that market prices fail to converge to asset value in two of three sessions, even though data suggest that the students have factual knowledge of permanent earnings. We conduct five additional markets using undergraduate and graduate (master's) students recruited from an intermediate financial accounting course. In all five markets, prices converge to asset value. Our results suggest that additional course work beyond introductory financial accounting may be necessary to enrich students' knowledge stores so that they can apply knowledge of permanent earnings in a meaningful economic setting.
The Methodist Hospital System: Tax Exemption and Charitable Responsibilities of Not-for-Profit Hospitals
Authors: Bain Craig E. , Blankley Alan I. , Forgione Dana A.
Published: April 2008

In November 1990, the Texas Attorney General filed a lawsuit against The Methodist Hospital System, alleging that it had failed in its duty to provide enough charity care to poor people. The state claimed that the hospital provided significantly less charity care than the hospital reported; it then filed the suit in an effort to require specific performance—that is, to compel the hospital to provide greater amounts of charity care in the future. The case focuses on the amount of charity care provided before the suit, the economic value of the tax exemption provided to the hospital because it is a not-for-profit (NFP) hospital, and the responsibilities of the hospital given the expectations of society. The case also brings into sharp relief the value of having tax-exempt status and the social and political expectations that accompany the exemption. In addition, the case raises ethical questions concerning these issues, as well as issues involving the financial reporting of the entity and management perquisites.
Processes Implemented for AACSB Accounting Accreditation and the Degree of Faculty Involvement
Authors: Sinning Kathleen E. , Dykxhoorn Hans J.
Published: April 2008

As of November 15, 2000, 370 domestic educational institutions achieved AACSB accreditation of their business programs. Approximately 40 percent (149) of those institutions also earned elective accounting accreditation. Preparing for accreditation may entail implementing many changes and developing processes to guide and manage those changes. This paper presents the results of a survey conducted to (1) determine the types of processes the accounting units (departments, divisions, and schools of accountancy) have implemented to achieve accounting accreditation and (2) ascertain the degree of faculty involvement in those processes. A questionnaire was sent to the administrators of the 133 schools or departments of accounting that had received accounting accreditation as of February 1999, the date the survey was mailed. Sixty-eight useable surveys were returned, resulting in a response rate of 51 percent.

The results show that accounting units that have achieved accounting accreditation have developed a variety of processes to write missions and goals, design the curriculum, develop faculty, improve instruction, evaluate outcomes, and assure continuous improvement. The study also found that accredited accounting units involve faculty extensively in the processes and must devise ways to maintain their long-term commitment to the processes. The paper discusses the revisions in the accounting accreditation standards that were approved in April 2000 and, based on the results of the survey, suggests additional processes that units may have to develop to meet the changes in the standards. Institutions considering accounting accreditation can use the results of this study to help prepare for accreditation.
Developing Risk Skills: An Investigation of Business Risks and Controls at Prudential Insurance Company of America
Authors: Walker Paul L. , Shenkir William G. , Hunn C. Stephen
Published: April 2008

The Prudential Insurance Company was involved in the largest life insurance churning scam of the 1980s and early 1990s. At the time, Prudential had weak business controls, and its corporate culture was characterized as ineffective and loose. However, this scandal is rooted in something deeper than a poor control environment. Prudential was a company facing several risks; many company decisions allowed these risks to have a dramatic impact on the company. As a result, its weak control environment came to the forefront, allowing the churning scam to reach its record levels. This case demonstrates the value of identifying and assessing risks in an organization. Further, the case demonstrates how to build control solutions to match the risks. Learning how to manage risks is a valuable skill for business professionals. In fact, the AICPA's Special Committee on Assurance Services (AICPA 1997), also known as the Elliott Committee, identified risk assessment as one of the emerging assurance services offered by CPAs.
The Relationship of the DIT and Behavior: A Replication
Authors: Bay Darlene D. , Greenberg Robert R.
Published: April 2008

Accounting ethics instruction, like accounting ethics research, has been strongly influenced by the work of Kohlberg and his stages of ethical development. The Defining Issues Test (DIT), which is based on Kohlberg's theory, has been extensively used to assess level of ethical development of both accounting students and accounting practitioners. Theory suggests that the relationship between p-score on the Defining Issues Test (DIT) and behavior should be linear, i.e., ethical behavior should increase monotonically with level of ethical development. However, Ponemon's (1993a) paper reported a quadratic relationship, meaning that subjects with low scores and those with high scores are more likely to behave unethically. This study replicates Ponemon's (1993a) study. Unobtrusive observation of actual behavior in a laboratory experiment is used to record behavior, which is then related to p-score on the DIT. The results confirm Ponemon's (1993a) finding of a quadratic relationship. However, in this study, the results appear to be driven by the behavior of male subjects; female subjects show a monotonically decreasing level of ethical behavior as p-score on the DIT increases.