Behavioral Research in Accounting
Published annually by the Accounting, Behavior and Organizations Section
of the AAA

1993, Volume 5


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Opportunities in Behavioral Accounting Research

E. Michael Bamber
Given the explosion in behavioral accounting research over the last 15 years, the purpose of this paper is to provide an overview of current behavioral accounting research opportunities. The paper addresses three questions: What is getting published and where is it getting published? What research questions are generating the most interest in the subfields of accounting information systems, auditing, financial accounting, managerial accounting, and taxation? What are the generally accepted findings of this research opportunities? Particular attention is given to research methods and findings that may transfer across accounting subfields. Research opportunities are discussed first in terms of accounting subfields, and then in terms of three broad themes: (1) knowledge and expertise, (2) technology and decision aids, and (3) group processes, organizational choice and culture.

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The Effects of Information Availability and Cost on Investment Strategy Selection: An Experiment

Robert Bricker and Marinus DeBruine
Using a computer-based set of experiments, this study explores the relationship between information cost and availability, and the investment strategy selections of subject-investors. Hypotheses about price-taking, risk-averse investors' preferences for costly financial information-seeking investment strategies are tested. The results showed that subjects exchanged expected return for reasonably costly financial information that reduced investment portfolio risk. However, uneconomical information had the effect of decreasing the frequency of information seeking strategies and increasing the frequency of both riskier and riskless strategies that did not require information acquisition. The level of investment activity in the experimental securities market was also found to be sensitive to the cost and availability level of information. These results confirm the importance of reasonably priced information for a securities market, and suggest that costly or unavailable information about securities' risk may inhibit capital formation. Within a financial reporting scenario, the results also address the importance of considering investor risk preferences in regulatory decisions concerning the provision of financial information.

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The Outcome Effect in Performance Evaluation: Decision Process Observability and Consensus

Joseph Fisher and Thomas I. Selling
The potential effects of outcome knowledge on performance appraisal are examined using a bankruptcy prediction task.. Independent variables are outcome knowledge, observability of evaluatee's decision processes, and evaluator-evaluatee-outcome agreement. Study of evaluatee's decision process was motivated by results in agency and control theories, whereas evaluator-evaluatee-outcome agreement has not yet been addressed by researchers studying performance evaluation. Results show that (1) evaluator-evaluatee-outcome agreement interacts with outcome knowledge in affecting performance evaluation, and (2) observability of decision process mitigates the outcome effect.

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Auditors' Causal Probability Judgments in Analytical Procedures for Audit Planning

Joanna L. Ho and Robert G. May
This study examines auditors' probability judgments in an analytical-planning context. The conjunction rule for probabilities is used as a benchmark for examining the effects of extremity of an unexpected fluctuation in a financial ratio, plausibility of causes, audit implications of causes, and experience-related knowledge on auditors' probability judgments about the possible causes of a fluctuation in the gross margin ratio. One hundred and sixteen practicing auditors with average experience of 3.2 years were provided with a four-year trend including a current observation of a key financial ratio of a hypothetical client-firm and its industry. Results indicate that auditors violated the conjunction rule more often when the fluctuation was more extreme. The auditors apparently were influenced by an interaction between the audit implications and plausibilities of the possible causes, but not by them separately. Students, lacking knowledge of the relationships between the gross margin ratio and the underlying causes, were affected only by the audit implications.

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An Examination of the Effects of Accountability Tactics on Performance Evaluation Judgments in Public Accounting

Steven E. Kaplan and Philip M. J. Reckers
Limited attention has been given to examining how performance evaluators make decisions about a subordinate's behavior. This study, grounded in attribution theory, examines the effects of a subordinate's explanation (accountability tactics) for substandard performance on evaluation judgments. Using data from a laboratory experiment involving 88 experienced audit professionals, a subordinate's use of accountability tactics was hypothesized to interact with available client and subordinate information when auditors' form causal attributions. Contrary to expectation, accountability tactics were found to have a significant main effect only. Causal attributions, in turn, were found to influence both the subjects' end-of-job performance ratings and their tendency to work with a subordinate on future assignments.

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The Effects of Fraud Signals, Evidence Order, and Group-Assisted Counsel on Independent Auditor Judgment

Philip M. J. Reckers and Joseph J. Schultz, Jr.
Recently, the prevention, detection and reporting of fraud has drawn substantial attention. The Record of the National Commission on Fraudulent Financial Reporting [1987], the nine "expectation gap" Statements on Auditing Standards [AICPA, 1988], and ongoing Congressional hearings by Congressmen Dingell, Gonzales and others focus attention on huge reported losses from alleged corporate fraud. Extension of group information-processing procedures in auditing has been suggested as a potential means to achieve higher quality audits. This paper reports the findings of an experimental study examining individual and group-assisted audit judgments of 99 Big 6 audit seniors under varying levels of fraud. In addition, the paper addresses the influence of group assistance on the recent order effect common to many audit studies. Group assistance was found to result in judgments with greater adherence to the guidance present in professional standards, whereas order effects were found to persist for auditors in the low, but not high, fraud condition.

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The Effects of Auditors' Ethical Orientation on Commitment and Ethical Sensitivity

Michael K. Shaub, Don W. Finn and Paul Munter
A significant body of research has demonstrated that ethical judgments are a function of individuals' ethical perceptions, or sensitivity. Little research, however, has been conducted to examine ethical sensitivity, and none has examined this sensitivity among auditors. This study used a path analytic approach to examine the ethical orientation, commitment, and ethical sensitivity of 207 auditors in a Big Six firm. Auditors' ethical orientations were found to influence not only their ethical sensitivity, but also their organizational and professional commitment. The results indicate that relativistic auditors were less likely to recognize ethical issues in an auditing scenario and were less committed to the firm and the profession than nonrelativists. Idealism was associated with a higher level of professional commitment, but with a reduced level of ethical sensitivity. Higher levels of commitment, however, did not result in more ethically sensitive auditors.

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The Role of Post Completion Audits, Managerial Learning, Environmental Uncertainty and Performance

Robert H. Chenhall and Deigan Morris
This study examines the role of post completion audits (PCAs) in assisting managers to learn about the project definition stage of capital budgeting decisions. A two-stage model is proposed in which environmental uncertainty moderates the association between PCAs and managers' learning. The second stage proposes that learning is associated with higher managerial performance. The results of a survey of 85 managers provides evidence supporting these propositions. The findings suggest that designers of management accounting systems should be circumspect in their expectations of the potential beneficial effects from PCAs. It seems likely that PCAs are best suited for improving managerial learning in more certain operating situations. The results also support the view that learning is a significant attribute of higher performing managers.

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A Capital Budgeting Case Study: An Analysis of a Choice Process and Roles of Information

Mark K. Hirst and Jane A. Baxter
This paper seeks to investigate the descriptive validity of theoretical typifications of how choices are made in organizational settings, and how information may be implicated in the choice process. The vehicle for investigating such theoretical schemes is a case study of a capital budgeting investment decision.

Four models of choice (bounded rationally, standard operating procedures, political, and artifactual) and three roles of information (instrumental, strategic, and symbolic) are used to structure observations and to analyze the data. The major findings are that more than one model of choice is necessary to describe the choice process, and similarly, more than one role of information is evident in the process. Discussion centers on the relations among choice models and roles of information.

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Incorporating Statistical Power into the Test of Significance Procedure: A Methodological and Empirical Inquiry

R. Murray Lindsay
Statistical power represents the probability of rejecting the null hypothesis when it is false and some specific alternative hypothesis is true. Despite the crucial role it plays in providing for meaningful tests and obtaining reliable inferences, the concept of statistical power rarely surfaces in accounting--either methodological or empirical. The purpose of this article is to redress this imbalance in arguing for its formal inclusion in the test of significance procedure. Specifically, the article examines what power is, the serious consequences of failing to formally incorporate power in the inference process, and the twofold role of power analyses in classical statistical tests. In addition, a survey of management accounting research is undertaken for the purposes of calculating the statistical power of the average study and determining researchers' awareness and attention to power considerations. The results indicate that researchers display little understanding or appreciation for the importance of power in conducting their research; moreover, they have paid a dear price for this: the power of the average study is unacceptably low. Also, the obtained level of significance p continues to be the predominant measure used by many researcher to interpret the meaningfulness and overall importance of their results. Taken in total, these findings suggest a situation which can be expected to impede the development of the discipline. Finally, a redress to the low power problem facing many behavioral researchers is examined, along with an application of the approach.

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Confidence and Information Usage: Evidence from a Bankruptcy Prediction Task

Thomas I. Selling
The subject of confidence in judgment tasks has been discussed extensively in the experimental psychology literature, but little is known about the prevalence of overconfidence in tasks involving the selection and processing of information, an issue of fundamental concern to accountants. The current research employs a bankruptcy prediction task to investigate the effect of information choice on confidence, and factors that may cause unjustified confidence in judgments to occur. The results tend to support existing behavioral theories of confidence. However, support is generally conditional on the level of task predictability. In addition, information usage is highly related to confidence in a non-linear fashion, and there exists a negative correlation between overconfidence and information usage.

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