bluuebunny/crossref_metadata_2025 huggingface dataset:
Audit Procurement: Managing Audit Quality and Audit Fees in Response to Agency Costs
Authors: Jensen Kevan L. , Payne Jeff L.
Published: April 2008

This study examines (1) the association between agency costs and audit-procurement practices, and (2) the association between audit-procurement practices, audit quality, and audit fees. Improved audit procurement has been promoted as a mechanism for improving audit quality, particularly in the public sector where auditor moral hazard problems have historically existed. Using a sample of municipal organizations, we find evidence that cities facing higher levels of agency costs, and cities that rely more on their external auditors to relieve such costs, tend to have better-developed audit-procurement practices. We also find evidence that well-developed audit-procurement practices (and individual audit-procurement elements), are associated with the hiring of auditors who have higher levels of industry experience—suggestive of higher audit quality. Finally, we find evidence suggesting that well-developed audit-procurement practices have a minimal combined effect on audit fees; however, individual audit-procurement elements are associated with audit fees.
A Longitudinal Investigation of Auditor Error Projection Decisions
Authors: Allen Robert D. , Elder Randal J.
Published: April 2008

We investigate auditor error projection decisions based on a sample of audit sampling applications collected from the inventory and accounts receivable workpapers from three large firms for audits during 1994 and 1999. We find an overall decline in the rate of error projection, consistent with the argument that audit quality declined during the period. Error projection rates declined for both Big 5 firms in the sample, but increased for the non-Big 5 regional firm. The results also suggest significant individual firm changes in the treatment of nonprojected errors. The use of immateriality as a justification to not project errors increased significantly for one of the firms in our sample and decreased significantly for another firm. The use of containment procedures to resolve large audit differences increased significantly for one firm in our sample. Individual firm differences in error projection and use of immateriality and containment procedures appear to be sensitive to the review process and individual audit firm characteristics. These results indicate that certain audit judgments differ among firms and within firms across time.
A Field-Based Analysis of Audit Workpaper Review
Authors: Fargher Neil L. , Mayorga Diane , Trotman Ken T.
Published: April 2008

This paper applies the models of Gibbins and Trotman (2002) and Rich et al. (1997a) in a public sector environment. We consider the factors impacting extent of review, level of stylization, and reviewer styles. We also examine the impact of reviewer rank on the above. In a field-based study we found that variation in review hours was due to both individual reviewer factors (reviewer style) and contextual factors (company size, time pressure, attitude of the reviewer to detail). Overall these results support the general robustness of the Gibbins and Trotman (2002) model to a public sector environment involving very experienced seniors and managers. Following the Rich et al. (1997a) framework we also provide evidence on the extent and types of stylization in the review process. Seniors and managers believed that the focuses of different reviewers differed substantially and that they stylized both the presentation and content of the working papers to accommodate these differences. While the evidence on their stylization was strong, their awareness of stylization by preparers for them was weaker. We also found significant differences between senior and manager reviewers including their extent of review, expectations of the perceived emphasis of the review level above, relative time spent on opinion formation and documentation, and the extent of their responses to reviewers' preferences. Finally, we provided a range of additional insights into reviewer style.
An Analysis of Cross-Sectional Differences in Big and Non-Big Public Accounting Firms' Audit Programs
Authors: Blokdijk Hans , Drieenhuizen Fred , Simunic Dan A. , Stein Michael T.
Published: April 2008

A significant body of prior research has shown that audits by the Big 5 (now Big 4) public accounting firms are quality differentiated relative to non-Big 5 audits. This result can be derived analytically by assuming that Big 5 and non-Big 5 firms face different loss functions for “audit failures” and is consistent with a variety of empirical evidence from studies of audit fees, auditor changes, and the stock price reaction to audited earnings. However, there is no existing evidence (of which we are aware) concerning the underlying production differences between Big 5 and non-Big 5 audits. As a result, existing empirical evidence cannot distinguish between the possibility that Big 5 audits are simply perceived to be different (e.g., by investors) or actually differ in how they are produced.

Our research objective is to identify the production characteristics of audit engagements that may explain the differences in expected audit quality between Big 5 and non-Big 5 firms. In this archival study, we examine the total audit effort and the allocation of effort to four audit phases—planning, (control) risk assessment, substantive testing, and completion—for a cross-section sample of 113 audits of Dutch companies in 1998/99 by 14 public accounting firms. We find that, after controlling for client characteristics: (1) both types of auditors exert about the same amount of total audit effort; (2) Big 5 auditors allocate relatively more effort to planning and (control) risk assessment, and relatively less to substantive testing and completion; and (3) client size, use of the business-risk-based audit approach, and reliance on client internal controls affect audit hours differently for the two auditor types. We conclude that the Big 5 firms actually produce a higher audit quality level, and that this quality difference is related to how audit hours are deployed in a more contextual and less procedural audit approach.
Earnings Management, Litigation Risk, and Asymmetric Audit Fee Responses
Authors: Abbott Lawrence J. , Parker Susan , Peters Gary F.
Published: April 2008

This study examines the association between audit fees and earnings management, using publicly available fee data. We hypothesize that, due to asymmetric litigation effects, audit fees decrease (increase) with a client's risk of income-decreasing (increasing) earnings management risk. We also hypothesize that the positive relation between income-increasing earnings management risk and audit fees is heightened for clients that are high-growth firms. We test our hypotheses with a sample of 429 public, non-regulated, Big 5 audited companies, using fee data for the year 2000. We find that downward earnings management risk, as estimated by negative (i.e., income-decreasing) discretionary accruals, is associated with lower audit fees. We also document that upward earnings management risk, as estimated by positive discretionary accruals, is associated with higher audit fees and that the interaction of this risk with an industry-adjusted price-earnings ratio has an incrementally significant, positive effect on fees. We interpret our findings as consistent with a conservative bias on the part of auditors. The conservative bias arises from asymmetric litigation risk in which income-increasing discretionary accruals exhibit greater expected litigation costs than income-decreasing discretionary accruals (Simunic and Stein 1996; Palmrose and Scholz 2004; Palmrose et al. 2004; Richardson et al. 2002; Heninger 2001).
Firm Characteristics and Voluntary Management Reports on Internal Control
Authors: Bronson Scott N. , Carcello Joseph V. , Raghunandan K.
Published: April 2008

This study provides evidence on the nature of voluntary management reports on internal control (MRIC), and on the characteristics of firms issuing such reports, before internal control reports were mandated under Section 404 of the Sarbanes-Oxley Act. We examine the association between firm characteristics and the voluntary inclusion of an MRIC in the firm's annual report. Our analysis of 397 midsized firms in 1998 indicates that a voluntary MRIC is more likely for firms that are larger, have an audit committee that meets more often, have a greater level of institutional ownership, and have more rapid income growth. We find that a voluntary MRIC is less likely for companies with more rapid sales growth. Slightly more than one-third of our sample issues an MRIC. None of the voluntary MRICs mention any material weaknesses; no reports include an auditor attestation; less than half (41 percent) of the reports include a statement that controls were effective; and only three of these reports include the criteria used to assess control effectiveness.
Factors Associated with the Early Adoption of the SEC's Revised Auditor Fee Disclosure Rules
Authors: Asthana Sharad , Krishnan Jayanthi
Published: April 2008

Corporate disclosures of auditor fees (beginning in February 2001) caused considerable concern among regulators and investors about auditor independence because they revealed that nonaudit fees were a substantial proportion of total auditor fees. However, in 2003 the Securities and Exchange Commission (SEC) introduced revised disclosure requirements, specifying a broader definition of audit fees, and additional fee categories (SEC 2003). About 31 percent of our sample firms adopted the new rules in advance of the required date. We investigate the pattern of early adoption of the new fee disclosure rules by companies. Our results indicate that companies with greater nonaudit fee ratios during the prior year, companies that could show a greater decline in nonaudit fee ratios due to reclassification under SEC (2003), and companies that had greater audit-related fees after the reclassification were likely to adopt the new rules early. We conjecture that companies that had the most to gain from reclassifying fees—possibly by reducing negative investor perceptions about nonaudit services—adopted the new rules earlier than required.
Evidence of Perceived Quality of “Plain-Paper Statements”
Authors: Reinstein Alan , Green Brian Patrick , Miller Cathleen L.
Published: April 2008

CPAs have struggled with financial statement users placing too much confidence in nonpublic entities' limited-assurance documents. Despite Statement on Standards for Accounting and Review Services Number 1 (SSARS No. 1) issued in 1979, research shows that CPAs and statement users place confidence in and reliance on CPA compiled and reviewed statements. In 2000, the American Institute of Certified Public Accountants (AICPA) issued SSARS No. 8, Amendment to SSARS No. 1, Compilation and Review of Financial Statements, relating to plain-paper statements.

We surveyed practicing CPAs and bankers to measure their confidence in and reliance on no-assurance engagements: compilations, plain-paper statements, and statements with accountants' reports/letters. We find that both CPAs and bankers report some level of confidence in and reliance on plain-paper statements. Both parties perceive greater confidence in and reliance on financial statements where a CPA is known to be minimally associated with the statements.
A Research Note on the Effects of Gender and Task Complexity on an Audit Judgment
Authors: Chung Janne , Monroe Gary S.
Published: April 2008

This study examines the effects of gender and task complexity on the accuracy of audit judgments. Because research in cognitive psychology and marketing suggests that females may be more accurate decision makers in complex decision tasks, we hypothesize that there will be a significant interaction between gender and task complexity on the accuracy of an audit judgment. A 2×2 full factorial experiment (males/females by high-/low-task complexity) was carried out. The number and consistency of cues was manipulated to create the high- and low-complexity conditions. Participants were required to judge whether an inventory balance was fairly presented based on case material that contained a material misstatement in the inventory account balance. The results support the hypothesis.
An Examination of Perceived Barriers to Mentoring in Public Accounting
Authors: Kaplan Steven E. , Keinath Annemarie K. , Walo Judith C.
Published: April 2008

While both mentoring and peer relationships exist among some auditors in public accounting, little is known about these relationships. The purpose of this paper is to provide evidence on perceived barriers to mentoring and peer relationships in public accounting. Analysis of responses indicated three interpretable factors representing barriers to forming mentoring relationships. First, participants without a mentor perceived greater barriers from access to mentors and from willingness of the mentor. Gender differences were significant in all three factors. Partners perceived barriers from access to mentors to be lower than those perceived by the other ranks. Finally, willingness of the mentor was perceived to be a greater barrier by local firm participants than by intermediate or Big 5 firm participants.
A Descriptive Analysis of the Content and Contributors of Behavioral Research In Accounting 1989–1998
Authors: Meyer Michael , Rigsby John T.
Published: April 2008

This paper provides a description of the topical content and research methods used in BRIA during its first ten years using a modified Birnberg and Shields (1989) taxonomy of the “schools” of behavioral research, leading to an analysis of the impact of BRIA on the accounting literature. The authors and their schools of affiliation and degree are then examined. Next, cites used in BRIA are analyzed, and the most-cited authors, articles, and journals are indicated. The journals cited in BRIA are also ranked, both by total citation count over the ten-year period, and using a modal citation age in BRIA of four years, to show a change in the citation pattern in BRIA. In addition, we examine the extent to which BRIA is cited in four leading accounting journals, i.e., The Accounting Review; Contemporary Accounting Research; Accounting, Organizations and Society; and Auditing: A Journal of Practice & Theory. Finally, findings and conclusions of the study are discussed.
Evidence of an Association between Error-Specific Experience and Auditor Performance during Analytical Procedures
Authors: O'Donnell Ed
Published: April 2008

This study examined whether error-specific experience can improve auditor performance during analytical procedures. In a field experiment, practicing auditors with different amounts of experience used analytical procedures to diagnose the reason for an unexpected interperiod change in an account balance. Analyses controlled for the influence of (1) general audit experience, (2) industry-specific experience, and (3) error-specific experience. Findings suggest that, for participants with less general experience, error-specific experience increased the likelihood that they would provide a correct explanation. However, the benefits of error-specific experience diminished as general experience increased. One interpretation is that error-specific experience provides little or no incremental benefit for auditors who have already developed, through general experience, the analytical skills they need to perform effectively. These results provide evidence that error-specific experience could be a surrogate for the learning opportunities made available through general experience. Research that explores how error-specific experience might be provided through training is suggested.
Behavioral Implications of Information Systems on Disclosure Fraud
Authors: Schwartz Steven T. , Wallin David E.
Published: April 2008

This paper uses a laboratory setting to investigate behavioral issues related to disclosure fraud. Subjects issued disclosures under one of two settings. They either knowingly issued fraudulent reports or they allowed an information system to issue fraudulent reports at a chosen rate. The settings were economically equivalent and each mechanism allowed for an implementation of the profit-maximizing strategy. The central question is one of the relative effect of the available method of lying on the frequency of lying. The results show that when subjects were distanced from the fraud through use of an information system, they made choices that would maximize their earnings. However, making subjects more closely involved with the disclosure reduced the rate of fraudulent disclosures by 30 percent. Differences in female and male rates of fraudulent reporting waned over time.
The Influence of Fairness Perceptions and Goal Commitment on Managers' Performance in a Budget Setting
Authors: Wentzel Kristin
Published: April 2008

Recent budgeting research suggests that fairness perceptions play a role in performance. In particular, prior work demonstrates a positive relation between fairness and performance during budgeting. The process by which fairness perceptions translate into improved performance, however, remains unaddressed. This study contributes to the accounting literature by investigating whether fairness perceptions improve performance via participation by increasing managers' commitment to budgetary goals. Structural equation models are proposed in which both fairness perceptions and goal commitment influence managers' performance during budgeting. Questionnaire data collected from one field site in the midst of downsizing were used to test the models. The results suggest that increased participation during budgeting fosters a sense of fairness, which, in turn, increases managers' commitment to budgetary goals and subsequently enhances performance ratings. The direct path between fairness perceptions and performance, however, appears to be insignificant when goal commitment is considered.
The Effect of Client vs. Decision Aid as a Source of Explanations upon Auditors' Sufficiency Judgments: A Research Note
Authors: Anderson John C. , Moreno Kimberly K. , Mueller Jennifer M.
Published: April 2008

This study examines whether auditors will rate explanations for an unusual fluctuation provided by a decision aid as more sufficient than the same explanations provided by a client, when the explanations are insufficient to account for the fluctuation. While prior research has addressed auditors' sensitivity to the source reliability of various parties (e.g., client management, outside parties), little is known about auditors' perceptions of decision aids as an information source. Since a decision aid may be viewed as a highly objective source, auditors may tend to over-rate the sufficiency of explanations provided by a decision aid vs. those provided by a client. Our results show that auditors rated explanations provided by a decision aid as more sufficient than the same explanations provided by the client, when in fact the explanations were insufficient. These results suggest that more consideration be given to the impact of decision aids utilized in analytical review.
An Investigation of the Attributes of Top Industry Audit Specialists
Authors: Abdolmohammadi Mohammad J. , Searfoss D. Gerald , Shanteau James
Published: April 2008

Prior research in psychology and auditing has established that in addition to ability, experience, and knowledge, many other attributes such as confidence and communication skills are also important to expertise. The literature also suggests that the importance of various expert attributes differ by professional rank. This study extends this literature by providing evidence on an expanded list of attributes of top industry audit specialists (TIASs). Specifically, the study elicited data from 114 senior audit partners known to be TIASs by a Big 6 accounting firm. These subjects generated an extensive list of attributes of TIASs in an open-ended questionnaire and assessed their importance. They also assessed the importance of each attribute in a 25-item pre-defined list. Our findings confirm the importance of many attributes reported in the expertise literature that can be classified as judgment/technical expertise. Our study also identifies detailed attributes related to characteristics that can generally be classified as personality and social attributes. For example, we present evidence on the importance of many attributes that can be classified as leadership (e.g., “respected”), marketing (e.g., “marketing focus”), and accepted-as-authority (e.g., “recognition”) characteristics. The findings are robust and applicable to various industry specializations. Implications for research and practice are discussed.
Debiasing Balanced Scorecard Evaluations
Authors: Roberts Michael L. , Albright Thomas L. , Hibbets Aleecia R.
Published: April 2008

Lipe and Salterio (2000) found that superiors disregarded half of the information when using a Balanced Scorecard to evaluate the performance of two divisional managers. Only common measures affected the superiors' holistic evaluations, defeating the purpose of the Balanced Scorecard. Our study examines whether disaggregating the Balanced Scorecard results in evaluations consistent with the intent of the Balanced Scorecard approach. Results indicate the disaggregated strategy allows superiors to utilize unique as well as common measures, thus overcoming the common-measures bias. In addition, we find Balanced Scorecard performance evaluations explain more than half the variation in subsequent compensation decisions.
The Effects of Comprehensive Information Reporting Systems and Economic Incentives on Managers' Time-Planning Decisions
Authors: Ullrich Mark J. , Tuttle Brad M.
Published: April 2008

Recent innovations in management control systems, such as the Balanced Scorecard, are supposed to influence managers to redirect their attention among multiple objectives and areas. Extending prior studies that have examined behavior in only a single area, this study experimentally examines how comprehensive control systems influence managers as they allocate their time among multiple areas of responsibility. The results show that managers do not plan increases in their working week in response to increased monitoring or to performance-based incentives, but rather they shift their time from areas that are not monitored or rewarded to areas that are. The results support Kaplan and Norton's assertion that the Balanced Scorecard can be used to influence the way managers allocate their attention between organizational objectives.
Antecedents and Consequences of Quality Performance
Authors: Maiga Adam S. , Jacobs Fred A.
Published: April 2008

This study uses structural equation modeling to investigate the influence of management control systems (i.e., quality goal, quality feedback, and quality incentives) on quality performance, the influence of quality performance on both financial performance and customer satisfaction, and the impact of customer satisfaction on financial performance at the business unit level. Overall the results indicate substantial support for our proposed theoretical framework. However, the direct relationship between customer satisfaction and financial performance was insignificant. Further analyses indicate that quality performance mediates the relationship between management control systems and financial performance and customer satisfaction. The implications, limitations, and directions for future research are discussed.
Analysis of Diagnostic Tasks in Accounting Research Using Signal Detection Theory
Authors: Ramsay Robert J. , Tubbs Richard M.
Published: April 2008

Many accounting judgments are diagnostic tasks in which accountants, auditors, managers, or investors discriminate among possible states and decide which one exists. To measure the accuracy of such decisions, most accounting research employs percentage correct, a measure proven to be invalid and unreliable, primarily because it does not control for response bias. This paper describes Signal Detection Theory (SDT), a theoretical model of diagnostic tasks that has been supported empirically in many fields. SDT provides superior measures of accuracy and response bias. We discuss the benefits of employing SDT in accounting research and describe an SDT-based reanalysis of data related to two published accounting studies that results in revised conclusions and important additional insights.
Sources of Work-Family Conflict in the Accounting Profession
Authors: Pasewark William R. , Viator Ralph E.
Published: April 2008

Turnover of experienced and well-trained professionals continues to be a problem for accounting firms. Much of the turnover is among individuals who are trying to satisfy demands of both work and family. This study examines the sources of work-family conflict and their association with job outcomes in the accounting profession. One source of work-family conflict, work interfering with the family (WIF), is found to significantly relate to job satisfaction and turnover intentions. Females are much more likely than males to experience turnover intentions when their work interferes with their family.

Another source, family interfering with work (FIW), is not significantly related to either job satisfaction or to turnover intentions when flexible work arrangements are offered, but is related to turnover intentions when flexible work arrangements are not offered. As currently offered, flexible work arrangements seem to be effective at reducing turnover related to FIW.
The Effects of Experience on Complex Problem Representation and Judgment In Auditing: An Experimental Investigation
Authors: Lehmann Constance M. , Norman Carolyn Strand
Published: April 2008

The purpose of this study is to investigate problem representation and judgment by auditing professionals within the context of a going-concern task. Our results suggest more experienced auditors have more concise problem representations than do novices. In addition, our results show that some types of concepts listed in the problem representation are associated with judgment, regardless of experience level.

This study makes several contributions. First, understanding differences in problem representation at different levels of experience (novice, intermediate, and experienced) gives insight into the process of how representations change as experience changes/develops. Understanding the development of “becoming qualified” to make judgments regarding the going-concern evaluation assists in (1) the development of teaching approaches for analyzing a company's financial condition, and (2) professional development for less-experienced professionals. Further, our measure of problem representation, similar to that in Christ's (1993) study, provides a task-sensitive measure of problem representation for accounting research. This should have important implications for understanding expertise development in complex problem-solving tasks that auditors and accountants face.
An Information Economic Perspective on Experimental Research in Accounting
Authors: Maines Laureen A. , Salamon Gerald L. , Sprinkle Geoffrey B.
Published: April 2008

In this paper, we examine the role experimental research plays in developing accounting knowledge. We use as a framework for this examination an information economic perspective, positing that the general goal of accounting research is legitimate, consequential belief revision. We then evaluate how the characteristics of experimental research provide advantages and disadvantages in creating legitimate, consequential belief revision within the context of accounting issues. Throughout the paper, we provide guidance on how to design and implement experiments with the greatest potential to influence thought.
Choosing Teaching Methods Based on Learning Objectives: An Integrative Framework
Authors: Bonner Sarah E.
Published: April 2008

This paper develops a comprehensive framework for choosing teaching methods in accounting courses. Since teaching methods vary as to the conditions they can create and different types of learning objectives require different conditions for achievement, the premise guiding the framework is that the choice of teaching methods should be based primarily on the type of learning objective. The development of the framework yields two important conclusions. First, a single teaching method typically cannot create all the conditions necessary for a given learning objective. Second, learning objectives involving complex skills require teaching methods that promote active learning on the part of students, while learning objectives involving simpler skills can be achieved with more passive teaching methods. In practical terms, an accounting instructor needs to carefully employ multiple teaching methods to achieve all the learning objectives of a given accounting course, since these objectives likely encompass the full range of types of objectives.
Instructional Resources for Tax Education: Communicating the Complexities of Capital Gains for Individuals After the 1997 and 1998 Tax Acts
Authors: Nichols Nancy B. , Everett John O. , Boley Richard
Published: April 2008

his article provides examples and teaching tools for presenting the new capital gains provisions for individuals under the Taxpayer Relief Act of 1997 and the Internal Revenue Service Restructuring and Reform Act of 1998. For students to gain an understanding of these new complexities, they must work with examples and planning techniques that incorporate the new law in a meaningful way. This article provides two summary tables, three diagrams and nine computations or tax-planning mini-cases to assist tax professors in accomplishing this objective.
Instructional Case: Detecting Earnings Manipulation
Authors: Wiedman Christine I.
Published: April 2008

This case focuses on the use of financial statement analysis in the detection of earnings manipulation. Specifically, it draws on advances in the accounting research literature and provides a way of integrating this knowledge into an auditing or master's level accounting/financial statement analysis course. Students are required to assess the probability that a set of financial statements contain fraud by analyzing excerpts from the company's financial and proxy statements, and applying the Beneish (1997) probit model for detecting earnings manipulation. Students are also encouraged to utilize the Compustat database to compare the company's financial data to a peer group of firms in the industry. The appendix provides a discussion of academic research relevant to the analysis, including a description of simple analytical procedures, a listing of important qualitative risk factors to consider in assessing the likelihood of fraud (in part from Statement on Auditing Standards No. 82), and an in-depth description of the Beneish (1997) probit model. A spreadsheet is made accessible via the Internet for easy application of the model to the company in this case and to other companies.
Fraud Detection and Investigation: Microcomputer Consulting Services
Authors: Peterson Bonita K. , Gibson Thomas H.
Published: April 2008

This nonfictional case of inventory fraud in a university setting exposes students to fraud detection and investigation. These skills are becoming increasingly important for auditors, as evidenced by the alarming rate of fraud. The accounting profession has acknowledged the seriousness of this issue with the issuance of SAS No. 82, Consideration of Fraud in a Financial Statement Audit, developed in part to improve detection of frauds by auditors. The case raises many of the fraud-related issues faced by accountants: recognizing red flags indicative of fraud; the importance of a good system of internal controls; the profile of the typical fraud perpetrator; the fine line auditors walk when investigating a fraud; the need to develop an audit team with the appropriate level of expertise which may require members from a variety of disciplines (e.g., investigative, legal and forensic areas); and the difficulty of obtaining sufficient evidence to prosecute and convict perpetrators.
The Merchandising Ratio: A Comprehensive Measure of Working Capital Strategy
Authors: Cote Jane M. , Latham Claire Kamm
Published: April 2008

This teaching note has two objectives. First, it explores the limitations of the traditional measures of working capital management presented in the financial ratio analysis component of a typical accounting curriculum. Second, it presents an additional or alternative measure based on early work in the finance literature. Three current asset and liability accounts are combined into a single “Merchandising Ratio,” which provides a measure of the net effect of a firm's working capital management strategy. Data from a sample of retailing companies demonstrate how the merchandising ratio can be used to enhance students' analytical skills.
Multiple Motivations and Effects: The Case of Trust Preferred Stock
Authors: Frischmann Peter J. , Warfield Terry D.
Published: April 2008

This case examines the interplay of financial reporting, tax and regulatory motivations in a firm's decision to issue securities. The context for the case is a bank's decision whether to issue debt or trust preferred securities (TPS). Currently, TPS are changing the landscape of corporate balance sheets with an increasing number of companies reporting securities in the “mezzanine” section of the balance sheet (between equity and debt). Referred to by many as the “Holy Grail” of financial instruments, TPS appear to be the first securities to be treated as debt for tax purposes, but not for financial reporting or debt-rating purposes. Since their introduction in late 1993, they have quickly become the primary variant of new preferred stock issues, representing 60 percent of all new issues of preferred stock.
The Balanced Scorecard: A Potential Tool for Supporting Change and Continuous Improvement in Accounting Education
Authors: Chang Otto H. , Chow Chee W.
Published: April 2008

Rapid changes in the technological and competitive environment are posing serious challenges to accounting education. Meeting these challenges will require accounting educators and programs to undergo fundamental changes and to continuously seek ways to increase the value of their contributions. This article illustrates how the balanced scorecard may be used by accounting educators to stimulate, guide and sustain such continuous improvement efforts. Survey and interview responses from 69 accounting department heads are generally supportive of the balanced scorecard's potential applicability and benefits to accounting programs. These department heads also provide suggestions on the items that can comprise an effective balanced scorecard for an accounting department, as well as factors that can affect its successful implementation.
Instructional Case: WorkSource Enterprises: How the Board of Directors Monitors Performance
Authors: Carter William K.
Published: April 2008

This brief case provides an opportunity to design a Balanced Scorecard (BSC) or similar report for top management of a not-for-profit, service organization. The case contains sufficient data to permit calculation of some of the likely BSC measures. It can be used in any undergraduate or graduate course, provided students previously have studied BSC or its equivalent. The entity in the case is a multi-divisional, charitable organization that provides job training for disabled persons. The entity's divisions include business enterprises that employ the disabled and nonrevenue-generating functions such as administration and placement.
ITT Automotive North America: A Case Study Requiring Use of Benchmarking, Activity/Process Analysis, and Reengineering Concepts
Authors: Palmer Richard J. , Green Leland D.
Published: April 2008

Managerial and cost accounting textbook discussions of the “process view” of activity-based costing (ABC) often fail to communicate how companies use activity-based accounting, benchmarking, continuous improvement and reengineering techniques to improve their business processes. Such knowledge is valuable to students who will enter globally competitive markets. ITT Automotive North America is a business case that gives the reader the benchmark figures, cost and other process-performance data, and activity descriptions necessary to complete a project to improve a company's process to acquire and pay for small-dollar goods and services. Because of the cross-functional nature of the issues involved in process improvement, the case would also fit well in either an auditing or information systems course.
From Strategic Plan to Practical Realities: Developing and Implementing a Zero-Based Accounting Curriculum
Authors: Porter Brenda A. , Carr Shirley A.
Published: April 2008

During the 1990s, accounting educators and professional accountancy bodies throughout the Anglo-American world have become concerned about the inability of existing accounting programs to prepare students adequately for the dynamic, complex business environment they enter upon graduation. Massey University's Department of Accountancy shared such concerns and, in 1991, established a Curriculum Review Team (CRT) to undertake a comprehensive curriculum review. The CRT adopted a strategic approach and commenced its task by reviewing relevant literature and surveying the department's stakeholders to ascertain their opinions about, inter alia, desired attributes of accountancy graduates, the department's curriculum, and the department's strengths, weaknesses, opportunities, and constraints. Based on its research findings, the CRT developed an “ideal” curriculum. However, a number of politically driven obstacles caused the “ideal” curriculum to be modified prior to implementation. This paper reports on the development, modification, and implementation of Massey's new accountancy program. It also notes that accountancy departments may gain benefits by adopting a continuous improvement or Total Quality Management (TQM) approach to curriculum development.
Brodnax Minerals Company: A Case Study on Auditors' Responsibilities
Authors: Reisch John T.
Published: April 2008

Brodnax is a comprehensive auditing case involving litigation between external auditors and shareholders who lost billions of dollars as a result of a massive fraud. Students are required to discuss several important topics covered in most external auditing courses: the objectives and limitations of an audit, issues involving client acceptance and risk to the auditing firm, the rendering of appropriate audit opinions, and the auditors' responsibilities for the detection of fraud. The objective of the case is to provide students with an opportunity to see the importance for practicing auditors to consider the legal ramifications of performing their jobs in light of the litigious environment in which auditors work.
Earnings Management and Ethical Decision Making: Choices In Accounting for Security Investments
Authors: DePree Chauncey M. , Grant C. Terry
Published: April 2008

General Electric, Matell, NationsBank, and W. R. Grace are among companies recently under scrutiny for managing their earnings. This case uses a fictitious data set to simulate a decision environment in which earnings are managed in the context of accounting for investments in marketable securities. Decisions are made from the perspective of management interests and other stakeholders, the FASB's conceptual framework, and GAAP. These competing interests may lead to inconsistent conclusions. As a result, proper analysis of the issues and framing of defensible positions requires more than application of professional accounting standards. Resolution of conflicts of interest is made using appropriate ethical analysis based upon a philosophical framework of Utilitarian-Theory, Rights-Theory and Justice-Theory.
Famous Presidents Savings: Client Acceptance and Retention
Authors: Jenne Stanley Earl
Published: April 2008

The decisions to accept and retain clients are critical in the practice of public accounting. Firms must have clients to be profitable. Yet the revenue obtained from some engagements may not fairly compensate the firm for the additional risk assumed. Client acceptance and retention are therefore subjective decisions requiring good judgment on the part of the auditor. Thus, many of the questions posed in this case do not have one clear answer and require professional judgment. By completing the requirements of this case, students will make a judgment regarding client acceptance under conditions of uncertainty, defend their decision to their peers, and document their reasoning in a professional memo. This case has been developed from an actual client engagement and contains factual circumstances and difficulties faced by the auditor. The names have been changed to obscure the identities of the actual individuals and entities involved.
Using Digital Analysis to Enhance Data Integrity
Authors: Ettredge Michael L. , Srivastava Rajendra P.
Published: April 2008

Digital analysis is a method of analyzing the patterns of digits in a sample of numbers to determine if the sample is similar to a population of numbers. This article introduces digital analysis into the educational literature and provides instructors with materials that can be used to teach the concepts and power of digital analysis as a tool for improving data integrity. The article discusses how digital analysis is being used today and how it might be used in the future. It then discusses two digital frequency distributions that can be used as benchmarks to test data validity using digital analysis. Suggestions for class use are provided in a teaching note. Free Excel-based software that performs digital analysis can be downloaded via the Internet and distributed to students for use in one of the assignments.
The Socialization of Undergraduate Accounting Students
Authors: Clikeman Paul M. , Henning Steven L.
Published: April 2008

One purpose of accounting education is to introduce students to the values and ethical standards of the accounting profession (AAA Bedford Committee Report 1986). This study investigates whether undergraduate accounting education is successful at instilling in accounting students a sense of responsibility to financial statement users. In a longitudinal study of accounting and other business students, we find that accounting students oppose earnings management more strongly during their senior year than they did during their sophomore year. We also find that senior accounting students oppose earnings management more strongly than do senior students in other business disciplines. These results are consistent with a socialization process taking place wherein accounting students learn to give priority to financial statement users' needs, while students majoring in other business disciplines come to identify more closely with the goals of corporate managers.
Project Earnings Manipulation: An Ethics Case Based on Agency Theory
Authors: Cohen Jeffrey R. , Pant Laurie W. , Sharp David J.
Published: April 2008

The impact of accounting information on ethical behavior has been extensively documented. Additionally, agency theory is a widely accepted behavioral perspective. Despite this, there is an absence of instructional material in the accounting education literature that ties ethical issues to an agency-theory context. The primary objective of this case is to highlight control system ethical issues using an agency-theory context. Students explore their own reactions to a prohibited but unmonitored cost allocation action. Thus, this case is positioned to fill this void in any accounting course that covers agency theory or management control systems.
Budgeting and Performance Evaluation at the Berkshire Toy Company
Authors: Crawford Dean , Henry Eleanor G.
Published: April 2008

This case provides an opportunity to study budgets, budget variances, and performance evaluation at several levels. As a purely mechanical problem, the case asks for calculations of various price, efficiency, spending, and volume variances from a set of budgets and actual results. The case is also an interpretive exercise. After the variances have been computed, the next step is to develop plausible conjectures about their likely causes. Finally, it is a case about performance evaluation and responsibility accounting. The company has an incentive plan, based on the budget variances, that needs to be analyzed and critiqued.
Management Accounting Education: Yesterday, Today, and Tomorrow
Authors: Böer Germain B.
Published: April 2008

For the past 35 years I have been teaching management accounting to undergraduate students, graduate students, and M.B.A. students. My approach to the topic has evolved over the years as my understanding of management accounting and of management decision making has expanded. The real world of business has always fascinated me, and I take every opportunity I can to visit companies to view their operations and to talk with managers about the problems and issues they face. Management accountants at companies like Caterpillar, Inc., Nortel, Dresser (now a division of Halliburton Co.), and numerous other companies have helped me to learn about the ways that management accounting works in organizations. The more I learn about the practice of management accounting the more dissatisfied I become with what I teach in my courses, so my class material is constantly evolving to accommodate my everchanging understanding of management accounting. As my knowledge of management accounting deepens I find myself discussing fewer techniques and procedures and more policy issues. This paper allows me to share with the readers of Issues in Accounting Education some of the things I have learned, and I appreciate the opportunity the editor, David Stout, has provided me to expose my ideas to the readers of this journal. The views I offer on the past, the present, and the future of management accounting may annoy some, delight others, and bore several, but hopefully they will cause the readers to think about how we will train the next generation of management accountants.
Management Accounting Education at the Millennium
Authors: Maher Michael W.
Published: April 2008

This article examines the “journey” of management accounting education over the past 50 years, evaluates the state of the field today, and presents my personal observations about teaching approaches. I observe that we have seen a substantial addition of management accounting courses to business school curricula, and changes in what was conventionally known as “cost accounting” courses, over the past 50 years. In recent years, innovative topics have come primarily from practice and from empirical research about practice. The introduction of these innovations into courses, and the expansion of management accounting in business school curricula, has resulted in a field that is alive and well in academia. The future demand for management accounting courses may be in some jeopardy, however, because students might not see good job opportunities in management accounting. Management accounting educators must address these problems to avoid enrollment declines in management accounting. The way we teach management accounting can increase the value of our students and mitigate possible enrollment declines. By focusing on problem-solving skills and the organizational context of decisions, rather than the “facts” of management accounting methods, we can educate students to be creative problem solvers who add substantial value to their organizations.