bluuebunny/crossref_metadata_2025_split huggingface dataset:
Performance Measures and Management Control in New Product Development
Authors: Hertenstein Julie H. , Platt Marjorie B. 
Published: March 2008

An exploratory study was conducted to examine management control issues in new product development (NPD). The study focused on three management control aspects that NPD managers considered important: (1) position of NPD in the firm's organizational structure; (2) NPD process; and (3) NPD performance measures. Primary data were collected from NPD managers via interviews, workshops, and a questionnaire. For each management-control aspect studied, we examined current practice, recent changes, and how the control links to strategy.
The NPD function reported fairly high in the organization. The need to integrate NPD and strategy encouraged higher reporting levels, and shifts in reporting from engineering to marketing. The need to integrate NPD and strategy also drove the addition of NPD/strategy steps into already well-defined, phased NPD processes. However, NPD/strategy integration was not well reflected in performance measures. The firms studied used varied financial and nonfinancial performance measures, yet relatively few firms reported that their performance measures reflected key aspects of their strategies. NPD managers generally expressed dissatisfaction with the performance measurements, and firms appeared to be searching for more effective alternatives.
An Analysis of the Demand for Reporting on Internal Control
Authors: Hermanson Heather M. 
Published: March 2008

The purpose of this study is to analyze the demand for reporting on internal control. Nine financial statement user groups were identified and surveyed to determine whether they agree that: (1) management reports on internal control (MRIC) are useful, (2) MRICs influence decisions, and (3) financial reporting is improved by adding MRICs. In addition, the paper examined whether responses varied based on: (1) the definition of internal control used (manipulated as broad, operational definition vs. narrow, financial-reporting definition) and (2) user group.
The results indicate that financial statement users agree that internal controls are important. Respondents agreed that voluntary MRICs improved controls and provided additional information for decision making. Respondents also agreed that mandatory MRICs improved controls, but did not agree about their value for decision making. Using a broad definition of controls, respondents strongly agreed that MRICs improved controls and provided a better indicator of a company's long-term viability. Executive respondents were less likely to agree about the value of MRICs than individual investors and internal auditors.
Fraudulent Financial Reporting: Consideration of Industry Traits and Corporate Governance Mechanisms
Authors: Beasley Mark S. , Carcello Joseph V. , Hermanson Dana R. , Lapides Paul D. 
Published: March 2008

This paper provides insight into financial statement fraud instances investigated during the late 1980s through the 1990s within three volatile industries—technology, health care, and financial services—and highlights important corporate governance differences between fraud companies and no-fraud benchmarks on an industry-by-industry basis. The fraud techniques used vary substantially across industries, with revenue frauds most common in technology companies and asset frauds and misappropriations most common in financial-services firms.
For each of these three industries, the sample fraud companies have very weak governance mechanisms relative to no-fraud industry benchmarks. Consistent with prior research, the fraud companies in the technology and financial-services industries have fewer audit committees, while fraud companies in all three industries have less independent audit committees and less independent boards. In addition, this study provides initial evidence that the fraud companies in the technology and health-care industries have fewer audit committee meetings, and fraud companies in all three industries have less internal audit support.
This study of more current financial statement fraud instances contributes by updating our understanding of fraud techniques and risk factors in three key industries. Auditors should consider the industry context as they evaluate the risk of financial fraud, and they should compare clients' governance mechanisms to relevant no-fraud industry benchmarks.
Audit Committee Composition, “Gray Directors,” and Interaction with Internal Auditing
Authors: Raghunandan K. , Rama Dasaratha V. , Read William J. 
Published: March 2008

The functioning of corporate audit committees was criticized in recent years by the Treadway Commission, the Public Oversight Board, the Kirk Panel, and the SEC Chairman. In response, the NYSE and NASD sponsored the Blue Ribbon Committee (BRC) on Improving the Effectiveness of Corporate Audit Committees. The BRC Report includes recommendations aimed at strengthening director independence and qualifications, and highlights the role of internal auditors in assisting audit committees in the corporate governance process. Moreover, the first three recommendations of the BRC relate to audit committee composition: absence of inside or “gray” directors, and presence of a member with financial expertise.
This study examines the association between audit committee composition and the committee's interaction with internal auditing. Our results, based on responses from chief internal auditors of 114 public companies, indicate that committees comprised solely of independent directors and with at least one member having an accounting or finance background are more likely to (1) have longer meetings with the chief internal auditor; (2) provide private access to the chief internal auditor; and (3) review internal audit proposals and results of internal auditing. These findings provide empirical support for the BRC's recommendations related to audit committee composition.
Minority Interest in the Consolidated Retained Earnings Statement
Authors: Nurnberg Hugo 
Published: March 2008

Consolidated financial statements purport to report income, financial position, and cash flows of a parent company and its subsidiaries as if the group were a single company with one or more branches or divisions. Under the parent company theory, the consolidated entity perspective assumed in the consolidated income statement, the consolidated balance sheet, and the consolidated retained earnings statement differs from the consolidated entity perspective assumed in the consolidated cash flow statement. Even under extant expositions of the entity theory, the consolidated entity perspective assumed in the consolidated income statement, the consolidated balance sheet, and the consolidated cash flow statement differs from the consolidated entity perspective assumed in the consolidated retained earnings statement.
This paper develops a consistent consolidated entity perspective for all four consolidated financial statements. It demonstrates that under the entity theory, consolidated retained earnings includes the separate equities of both the parent company stockholders and the minority interest. As such, both elements of retained earnings should be reported in the consolidated retained earnings statement to make it comparable to the consolidated retained earnings statement of companies without subsidiaries or with only wholly owned subsidiaries. The effect on certain financial ratios of public companies may be substantial. The paper also demonstrates that for purchased subsidiaries, minority interest in consolidated retained earnings includes unamortized write-ups of identifiable net assets and goodwill arising from purchase-type business combinations.
How Informative Are Earnings Numbers That Exclude Goodwill Amortization?
Authors: Moehrle Stephen R. , Reynolds-Moehrle Jennifer A. , Wallace James S. 
Published: March 2008

In the original exposure draft, Business Combinations and Intangible Assets, the Financial Accounting Standards Board (FASB) proposed that companies be allowed to report a second per share earnings number that excludes goodwill amortization. Subsequently, the FASB has proposed that goodwill not be amortized at all. Instead, it will be written down when impaired. In this study, we assess the information content of earnings excluding amortization of intangibles relative to two traditional performance measures: earnings before extraordinary items and cash flow from operations.
We find that the relative informativeness of earnings before amortization and earnings before extraordinary items do not differ significantly. We also find, consistent with prior research, that both earnings before amortization and earnings before extraordinary items are more informative than cash flow from operations. These findings suggest that goodwill amortization disclosures were not decision-useful and, therefore, support the FASB's revised position.
The Conceptual Framework and Accounting for Leases
Authors: Monson Dennis W. 
Published: March 2008

For years, users of financial statements, academics, and standards setters alike have criticized the lease accounting standards as unnecessarily complex and ineffective in portraying liabilities arising from lease contracts in the balance sheets of lessee enterprises. Recognizing that current standards were adopted before the Financial Accounting Standards Board (FASB) and other standard-setting bodies completed their conceptual framework projects, critics of the lease accounting standards contend that the principal defect in existing standards is that they are at variance with the definitions of assets and liabilities in those frameworks. Some, including the Chairman and several other charter members of the newly formed International Accounting Standards Board (IASB), have called for new lease accounting standards anchored securely in the framework definitions of assets and liabilities. There is not universal agreement, however, on exactly what assets and liabilities result from applying these definitions to a lease contract. For companies that lease a significant amount of physical plant, financial statements produced under the two alternative interpretations explored in this paper are radically different.
This paper proposes a decision model for choosing between two alternative interpretations of the definitions of assets and liabilities in a leasing context, illustrates the effects on the basic financial statements of a lessee enterprise of applying these two alternative interpretations, and evaluates the results using the proposed decision model.
Accounting for Tax Benefits of Employee Stock Options and Implications for Research
Authors: Hanlon Michelle , Shevlin Terry 
Published: March 2008

This paper examines how firms account for and report the tax benefits of employee stock options (ESOs). The tax benefits of ESOs reduce taxes actually owed but enter stockholders' equity directly without reducing reported income tax expense. Failing to adjust reported income tax expense for this benefit can lead to poorly specified studies with the distinct possibility of considerable measurement error and flawed inferences.
We explain the adjustments needed for more reliable estimates of effective tax rates, tax burdens, and marginal tax rates often critical to analyses of firm-specific and public policy issues. We document problems with firms' disclosures and, using a sample of large NASDAQ firms likely to be heavy users of ESOs, find that adjusting for the ESO tax benefit is essential to understanding the impact of taxes on those firms.
Sampling Practices of Auditors in Public Accounting, Industry, and Government (Retracted)
Authors: Hall Thomas W. , Hunton James E. , Pierce Bethane Jo 
Published: March 2008

Although audit sampling is a common procedure, relatively little is known about the sampling practices of auditors in public accounting, industry, and government. This study surveyed practicing auditors to determine how they: (1) planned sample sizes, (2) selected sample items, and (3) evaluated sample outcomes. Respondents also provided data on the training received, debiasing techniques employed when using nonstatistical (judgmental) methods, and literature sources relied on to provide guidance regarding sampling matters.
Respondents in all areas of practice reported that a majority of audit sampling applications rely on nonstatistical methods for sample planning, selection, and evaluation. Despite the heavy reliance on nonstatistical methods, less than 10 percent of respondents reported receiving training in debiasing techniques, and no respondents reported using these techniques. Among statistical methods dollar-unit sampling is the most frequently employed technique. All respondents reported reliance on employer guidelines, and most reported reliance on sampling standards promulgated by the American Institute of Certified Public Accountants.
Disclosures in Audit Committee Charters and Reports
Authors: Carcello Joseph V. , Hermanson Dana R. , Neal Terry L. 
Published: March 2008

In response to recent criticisms of audit committee performance, new SEC and stock exchange rules require companies to prepare an audit committee charter and to publish the charter in their proxy statement at least once every three years. Audit committees also must disclose how they discharged their responsibilities during the year.
We study the disclosures in audit committee charters and reports by examining a random sample of 150 proxy statements filed in Spring 2001. The primary purposes of this analysis are to understand audit committee activities and to identify possible areas for further audit committee reform.
We find that what audit committees say they are doing in their reports differs from what their charters say the committee should be doing. There is a generally high level of compliance with mandated audit committee disclosures, such as disclosures related to reviewing and discussing the financial statements with management. However, voluntary disclosure of audit committee activities was more common for depository institutions, larger companies, NYSE-listed companies, and companies with more independent audit committees. These results indicate either more active audit committees in such companies, or a greater commitment to audit committee disclosure in such companies. In addition, some of the disclosure levels suggest the need for additional reforms regarding audit committee oversight of interim reports, number of audit committee meetings, and audit committee oversight of internal audit. We also suggest directions for future research.
How Chevron, Texaco, and the Indonesian Government Structured Transactions to Avoid Billions in U.S. Income Taxes
Authors: Gramlich Jeffrey D. , Wheeler James E. 
Published: March 2008

This paper explains the transactions, agreements, and accounting that Chevron, Texaco, and the Government of Indonesia used to structure transactions that avoided billions in U.S. income taxes. Although ChevronTexaco became a merged entity on October 9, 2001, for many years Chevron and Texaco operated as separate corporations, with each owning 50 percent of a group of primarily non-U.S. companies collectively known as Caltex. Transactions were structured such that Chevron and Texaco subsidiaries paid Caltex excessive prices for Indonesian crude oil, leading to excessive dividend income (with foreign tax credits) and cost of sales deductions on U.S. income tax returns. When one of the equal shareholders purchased more overpriced oil than the other, Caltex paid monthly “Special Dividends” to the “overlifter” that could be construed as cost rebates, not dividends. To compensate for the extra taxes it received, the Government of Indonesia provided Caltex with oil in excess of the amount called for under the formal production-sharing contract (PSC) with the Government of Indonesia.
We estimate that this arrangement allowed Chevron and Texaco together to annually avoid paying some $220 million in federal income taxes and $11.1 million in state income taxes from 1964 to 2002. These estimates produce total federal and state taxes avoided of $8.6 billion and $433 million, respectively, for the combined company, ChevronTexaco.
Conservatism in Accounting Part I: Explanations and Implications
Authors: Watts Ross L. 
Published: March 2008

This paper is the first in a two-part series on conservatism in accounting. Part I examines alternative explanations for conservatism in accounting and their implications for accounting regulators. Part II summarizes the empirical evidence on conservatism, its consistency with alternative explanations, and opportunities for future research. The evidence is consistent with conservatism's existence and, in varying degrees, the various explanations.
Conservatism is defined as the differential verifiability required for recognition of profits versus losses. Its extreme form is the traditional conservatism adage: “anticipate no profit, but anticipate all losses.” Despite criticism, conservatism has survived in accounting for many centuries and appears to have increased in the last 30 years.
The alternative explanations for conservatism are contracting, shareholder litigation, taxation, and accounting regulation. The evidence in Part II suggests the contracting and shareholder litigation explanations are most important. Evidence on the effects of taxation and regulation is weaker, but consistent with those explanations playing a role. Earnings management could produce some of the evidence on conservatism, but cannot be the prime explanation.
The explanations and evidence have important implications for accounting regulators. FASB attempts to ban conservatism in order to achieve “neutrality of information” without understanding the reasons conservatism existed and prospered for so long are likely to fail and produce unintended consequences. Successful elimination of conservatism will change managerial behavior and impose significant costs on investors and the economy in general. Similarly, researchers and regulators who propose the inclusion of capitalized unverifiable future cash flows in financial reports should consider the costs generated by their proposal's effect on managerial behavior.
Initial Evidence on the Association between Nonaudit Fees and Restated Financial Statements
Authors: Raghunandan K. , Read William J. , Whisenant J. Scott 
Published: March 2008

An increasing number of firms have restated previously issued financial statements in recent years. Legislators, regulators, and others speculate that restatements are associated with fees received by auditors for nonaudit services (nonaudit fees). The current study provides empirical evidence on the association between firms that restate financial statements and the nonaudit service fees received by incumbent auditors during reporting periods that required restatement.
We identify a sample of 110 firms that restated financial statements previously filed with the SEC for fiscal years 2000 or 2001, and provided relevant audit and nonaudit fee data. The SEC requires firms to disclose these fee data beginning in proxy statements filed on or after February 5, 2001. We compare the fees paid by the restatement sample with fee data for 3,481 firms that filed proxies with the SEC from February 5, 2001 to August 31, 2001 and develop benchmarks for expected nonaudit fees, fee ratio, and total fees. Using these benchmarks, we calculate the unexpected values for these measures and investigate whether restatement firms differ from the control firms. Our findings of no significant differences between the restatement and control samples for unexpected nonaudit fees, fee ratios, and total fees do not support concerns that either nonaudit fees or total fees inappropriately influence the audit and lead to restatements.
Conservatism in Accounting Part II: Evidence and Research Opportunities
Authors: Watts Ross L. 
Published: March 2008

This paper is Part II in a two-part series on conservatism in accounting. Part I examined alternative explanations for conservatism in accounting and their implications for accounting regulators (SEC and FASB). Part II summarizes the empirical evidence on the existence of conservatism, conservatism's increase over time, and conservatism's alternative explanations. It also discusses opportunities for future research on conservatism.
The empirical literature uses a variety of conservatism measures in time-series and cross-sectional tests of contracting, shareholder litigation, taxation, and accounting regulation explanations for conservatism. The tests' results suggest the importance of all four explanations. Two non-conservatism explanations—earnings management and the abandonment option—cannot individually or jointly explain the observed systematic understatement of net assets that is the hallmark of conservatism.
Researchers should note that accounting's effects on managerial behavior play a central role in the evolution of both accounting and financial reporting. Assessing the relevance of an accounting method to financial statement users' decisions requires assessing managers' abilities to use that method to manipulate accounting numbers and commit fraud. The evidence on conservatism suggests asymmetric verifiability is critical to constraining manipulation and fraud.
The Effects of Internal Audit Structure on Perceived Financial Statement Fraud Prevention
Authors: James Kevin L. 
Published: March 2008

This study examines whether internal audit reporting structure and internal audit sourcing arrangement affect financial statement users' perceptions of ability of the internal audit function to prevent financial statement fraud. A survey of lending officers finds that in-house internal audit departments that report to senior management are perceived as less able to provide protection against fraudulent reporting compared to in-house departments that report solely to the board of directors' audit committee. This finding is particularly important in light of the SEC's recent consideration of whether the audit committee should be directly responsible for oversight of the internal auditor.
This study does not find a difference in users' perceptions of financial statement fraud prevention between outsourced internal audit teams and in-house internal audit departments when both report to the audit committee. Results suggest that increases in perceived audit expertise may occur with outsourcing, but such increases may not significantly enhance user confidence in the internal audit function because users perceive outsourced teams to have less in-depth knowledge of the company than in-house internal audit departments.