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role of professional judgment in the application of United States accounting standards: An experimental study of the effect of professional judgment on financial reporting decisions of accountants
Title
The role of professional judgment in the application of United States accounting standards: An experimental study of the effect of professional judgment on financial reporting decisions of accountants.
Creator
Rentfro, Randall Wesley, Florida Atlantic University, Hooks, Karen L.
Abstract/Description
This study examines two questions: (1) whether the level professional judgment required in the application of accounting standards affects the comparability of financial reporting; (2) whether financial statement preparers exploit the professional judgment in accounting standards in order to engage in earnings management. The study is motivated by former FASB Chair Dennis Beresford's call for simple accounting standards which rely heavily on the exercise of professional judgment and by SEC...
Show moreThis study examines two questions: (1) whether the level professional judgment required in the application of accounting standards affects the comparability of financial reporting; (2) whether financial statement preparers exploit the professional judgment in accounting standards in order to engage in earnings management. The study is motivated by former FASB Chair Dennis Beresford's call for simple accounting standards which rely heavily on the exercise of professional judgment and by SEC Chair Arthur Levitt's concerns that managers exploit the flexibility in accounting standards to engage in earnings management. Agency theory is used to develop two hypotheses which predict the conditions under which financial statement preparers exploit the professional judgment allowed in the application of accounting standards in order to manage earnings. Normative arguments are used to develop a third hypothesis about the relationship between the level of professional judgment required to apply accounting standards and the comparability of financial reporting. The study uses an experiment methodology to examine the financial reporting decisions of 111 financial statement preparers in corporations located throughout the United States. Participants are randomly assigned to one of four experimental groups (a control group, a profit-sharing plan group, an information asymmetry group, and a moral hazard group). The study's results support the hypothesis that there is less comparability in financial reporting when accounting standards rely heavily on the exercise of professional judgment than when standards place fewer demands on professional judgment. The findings also provide some support for the idea that moral hazard conditions interact with the level of professional judgment required in the application of accounting standards to affect the reporting decisions of financial statement preparers. However, the male financial statement preparers in this study reacted differently than their female counterparts when faced with moral hazard conditions.
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Date Issued
2000
PURL
http://purl.flvc.org/fcla/dt/12653
Subject Headings
Accounting--Standards--United States, Accounting--Decision making
Format
Document (PDF)
investigation of the availability, distribution, and usability of the comprehensive annual financial reports of United States cities
Title
An investigation of the availability, distribution, and usability of the comprehensive annual financial reports of United States cities.
Creator
Hall, Douglas Roger, Jr., Florida Atlantic University, Washington, Charles W.
Abstract/Description
Accountability is the cornerstone of democracy. Fiscal accountability is particularly important to an electorate. The system of fiscal accountability developed by the Governmental Accounting Standards Board is too complex and technical for the public, being beyond all but specially trained accountants and finance professionals. This dissertation investigates how the audited annual financial reports of U.S. cities are distributed and understood. The problem of governmental accounting...
Show moreAccountability is the cornerstone of democracy. Fiscal accountability is particularly important to an electorate. The system of fiscal accountability developed by the Governmental Accounting Standards Board is too complex and technical for the public, being beyond all but specially trained accountants and finance professionals. This dissertation investigates how the audited annual financial reports of U.S. cities are distributed and understood. The problem of governmental accounting complexity is treated as one of systemic nature due to the needs of a broad range of users and the wide range of uses for information contained in the audited annual financial reports. The study population is over 500 U.S. cities. The study methodology has three parts: a descriptive analysis of sample documents; a survey of finance directors requesting information about distribution of the reports, their perceptions on usability of the audited annual financial reports, and their opinions about the evolution of governmental accounting theory and practice. The third part of the study identified a cluster group sample of the general public who volunteered to complete a written survey and participate in a practical usability test with actual comprehensive annual financial report documents. The study concluded that there has been little or no marketing of the audited annual financial reports, actual distribution is exceedingly sparse, and that the general public has limited knowledge of the existence or availability of the document or the ability to make use of the comprehensive annual financial reports in their present form. Recommendations are made to release the audited annual reports in less time, free of charge, with wide distribution. The CAFR model needs to be simplified, organized better, and common language used. GASB, the Government Finance Officers Association, public administrators, and government finance professionals must accept the need to educate the public. Public administrators need to assert themselves when governmental accounting and financial reporting changes are contemplated.
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Date Issued
2001
PURL
http://purl.flvc.org/fcla/dt/11969
Subject Headings
Financial Accounting Foundation --Governmental Accounting Standards Board, Municipal finance--United States--Accounting, Local finance--Accounting--Standards--United States, Cities and towns--United States
Format
Document (PDF)
analysis of the impact of non-audit services on financial reporting quality: A test of two competing theories of auditor independence
Title
An analysis of the impact of non-audit services on financial reporting quality: A test of two competing theories of auditor independence.
Creator
Dickins, Denise., Florida Atlantic University, Skantz, Terrance R.
Abstract/Description
Auditor independence has been a long-standing issue for regulators resulting in numerous studies on the subject on how to enhance it and numerous rules that attempt to ensure it (e.g. Cohen Report 1978; ASR 250 1978; SEC Rule 2-01 2000). One of regulators' most recent attempts to shore up auditor independence is evident in the provisions of the Sarbanes-Oxley Act of 2002 (SOX). As a test of two competing theories of auditor independence, and to determine whether SOX mandates have successfully...
Show moreAuditor independence has been a long-standing issue for regulators resulting in numerous studies on the subject on how to enhance it and numerous rules that attempt to ensure it (e.g. Cohen Report 1978; ASR 250 1978; SEC Rule 2-01 2000). One of regulators' most recent attempts to shore up auditor independence is evident in the provisions of the Sarbanes-Oxley Act of 2002 (SOX). As a test of two competing theories of auditor independence, and to determine whether SOX mandates have successfully enhanced financial reporting quality, I examine post-SOX changes in non-audit fees (as a proxy for changes in quasi-rents) and the extent of changes in two measures of financial reporting quality. Results suggest that SOX mandates have been effective, and that the proposition of DeAngelo (1981b) that non-audit services may impair auditor independence may more-closely describe the relationship between changes in quasi-rents and changes in financial reporting quality than does the theory of Lee and Gu (1998). Further, supplemental analyses suggest that, as proposed by the theories, the amount of low-balling is positively related to the amount of quasi-rents.
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Date Issued
2006
PURL
http://purl.flvc.org/fcla/dt/12195
Subject Headings
Auditors--Evaluation, Accounting--Standards--United States, Auditing--Standards--United States, Auditing--Quality control, Disclosure in accounting
Format
Document (PDF)
Cognitive Dissonance and Auditor Professional Skepticism
Title
Cognitive Dissonance and Auditor Professional Skepticism.
Creator
Adikaram, Ruwan K, Higgs, Julia, Florida Atlantic University, College of Business, School of Accounting
Abstract/Description
I show that auditors experience cognitive dissonance when they fail to take appropriate professionally skeptical (hereafter PS) action in line with high PS judgment I specifically show that cognitive dissonance leads auditors to revise their attitudes on low ranking audit actions upward and lower their risk assessments, consequently, lower overall professional skepticism I also find that auditor cognitive dissonance leads to exaggerated ex-post auditor self-assessments professional skepticism...
Show moreI show that auditors experience cognitive dissonance when they fail to take appropriate professionally skeptical (hereafter PS) action in line with high PS judgment I specifically show that cognitive dissonance leads auditors to revise their attitudes on low ranking audit actions upward and lower their risk assessments, consequently, lower overall professional skepticism I also find that auditor cognitive dissonance leads to exaggerated ex-post auditor self-assessments professional skepticism Professional skepticism is fundamental to performing an audit according to auditing standards and critical to audit quality Extant research that investigates treatments to enhance professional skepticism predominantly treats both skeptical judgment and skeptical action as analogous outcomes of professional skepticism If, however, there is a breakdown between PS judgment and PS action, the overall benefits of these treatments will be trivial I show that cognitive dissonance due to the incongruence between PS judgments and PS actions leads to an unforeseeable corollary of lower overall professional skepticism I also demonstrate a specific mechanism of how auditor incentives lead to lower professional skepticism, hence, lower audit quality Both researchers and practitioners can benefit from this study by better understating the intricacies in the critical link between PS judgment and action Additionally, I provide an empirical investigation of the components in Nelson’s (2009) model of professional skepticism and extend the model to reflect the intricacies between PS judgment and PS action I test my hypotheses via a three-group research design with attitude change as a proxy measure of cognitive dissonance
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Date Issued
2016
PURL
http://purl.flvc.org/fau/fd/FA00004772
Subject Headings
Cognitive dissonance, Auditing--Standards, Accounting--Standards, Accounting--Moral and ethical aspects, Accountants--Professional ethics, Auditors--Psychology, Behaviorism (Psychology)
Format
Document (PDF)
value relevance of accounting numbers and the implications for international accounting standards harmonization: Evidence from Saudi Arabia and Kuwait
Title
The value relevance of accounting numbers and the implications for international accounting standards harmonization: Evidence from Saudi Arabia and Kuwait.
Creator
Alsalman, Ahmad M., Florida Atlantic University, Skantz, Terrance R.
Abstract/Description
This study examines whether accounting standards or institutional factors are the prime determinants of differences in value relevance of accounting numbers across countries. The motivation for this study arises from ongoing accounting harmonization efforts to increase the comparability of financial reporting across countries. Proponents of harmonization agree that investors support the need for comparability. Opponents, on the other hand, argue that efforts toward a common set of accounting...
Show moreThis study examines whether accounting standards or institutional factors are the prime determinants of differences in value relevance of accounting numbers across countries. The motivation for this study arises from ongoing accounting harmonization efforts to increase the comparability of financial reporting across countries. Proponents of harmonization agree that investors support the need for comparability. Opponents, on the other hand, argue that efforts toward a common set of accounting standards worldwide may not achieve comparability as long as economical, cultural, and political differences exist across countries. So, the question is whether the application of common accounting standards result in enhanced comparability of financial statements, given that firms operate in different countries with different regulatory and cultural influences. This study examines the relationship between reported financial figures and both stock prices and returns across Saudi, Kuwait, the U.S., and U.S. listed firms that use international accounting standards (IAS-sample) to determine whether there are differences in the value relevance of their accounting numbers. Saudi and Kuwait have similar environments. However, they use different GAAPs. Saudi uses U.S. GAAP and Kuwait uses IAS. As a benchmark, this study uses samples of firms that use U.S. GAAP, and that use IAS, with both samples listing in the U.S. capital market. To determine whether accounting standards play a large role in differences in value relevance across these countries, four comparisons are performed: (1) Saudi and the U.S.; (2) Kuwait and IAS-sample; (3) Saudi and Kuwait; and (4) the U.S. and IAS-sample. The results show that there are significant differences in the value relevance between countries that apply the same standards but have different institutional factors. On the other hand, there are no significant differences, in most cases, in the value relevance between countries that apply different standards but operate in a similar environment. Moreover, this study attempts to determine whether earnings conservatism differs across these countries. This study provides evidence that institutional factors affect the differences in earnings conservatism. The findings of this study suggest that international harmonization of accounting standards may not be easily accomplished because institutional factors play an influential role in information dissemination.
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Date Issued
2003
PURL
http://purl.flvc.org/fau/fd/FADT12079
Subject Headings
Accounting--Standards, Financial statements--Standards, Investment analysis--Saudi Arabia, Investment analysis--Kuwait, International economic relations--Standards, Strategic alliances (Business)--Middle East
Format
Document (PDF)