Behavioral Research in Accounting


Volume 16

A publication of the Accounting, Behavior and Organizations Section
of the American Accounting Association

Table of Contents

Main Articles

Editorial Policy and Style Information

*Commissioned by S. Kaplan
**Accepted by previous editor, Susan Haka

An Investigation of the Attributes of Top Industry Audit Specialists

Mohammad J. Abdolmohammadi
Bentley College

D. Gerald Searfoss
University of Utah

James Shanteau
Kansas State University

ABSTRACT: 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.

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The Role of Cognitive and Affective Conflict in Early Implementation of Activity-Based Cost Management

Robert H. Chenhall
Monash University

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

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Audit-Planning Judgments and Client-Employee Compensation Contracts

Shane S. Dikolli
The University of Texas at Austin

Susan A. McCracken
University of Toronto

Justin B. Walawski
The Institute of Professional Development

ABSTRACT: This paper investigates, in a laboratory setting, the impact of different types of client-employee compensation contracts on auditors’ audit-planning judgments. Self-interested client-executive actions (motivated by executive incentive pay) have been claimed to be at the core of a recent large public company failure and the associated demise of the company’s global auditors (Byrne et. al 2002). However, we know relatively little about how client-employee compensation contracts affect the planning choices of auditors. Our main result is that audit-planning judgments are greater (i.e., audit risk is assessed higher and the level of evidence required to perform the audit is assessed higher) if the bonuses are based on financial performance measures rather than nonfinancial performance measures. We also find that audit-planning judgments are greater (i.e., audit risk is assessed higher, internal controls are assessed weaker, and more substantive evidence is required) if client-employee compensation comprises a fixed salary plus bonuses, based on either financial or nonfinancial performance measures, rather than comprises a fixed salary only; however, we find only partial support for the finding with respect to nonfinancial measures. An important implication of these findings is that audit firms may need to pay careful attention to how auditors are trained in strategic systems auditing approaches that rely more on understanding a client’s nonfinancial performance measures and less on transaction-based testing.

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Clients’ Expectations on Audit Judgments: A Note

Venkataraman M. Iyer
University of North Carolina at Greensboro

Dasaratha V. Rama
Florida International University

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

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Debiasing Balanced Scorecard Evaluations

Michael L. Roberts
Thomas L. Albright
Aleecia R. Hibbets
The University of Alabama

ABSTRACT: 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.

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The Effects of Comprehensive Information Reporting Systems and Economic Incentives on Managers’ Time-Planning Decisions

Mark J. Ullrich*
Naval Postgraduate School

Brad M. Tuttle
University of South Carolina

ABSTRACT: 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.


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Internet-Based Experiments: Prospects and Possibilities for Behavioral Accounting Research

Stephanie M. Bryant
University of South Florida

James E. Hunton
Bentley College

Dan N. Stone
University of Kentucky

ABSTRACT: The emerging technology of Internet-based experiments offers behavioral accounting research (BAR) new possibilities for obtaining large sample sizes, providing world-wide access to previously hard-to-reach participants (e.g., CFOs, audit partners, and financial analysts) and exploring new research questions. However, the validity characteristics of Internet-based experiments differ from previous BAR technologies. Herein, we review existing BAR Internet-based experiments, describe how to create and run Internet-based experiments, overview emerging literature on the validity of Internet-based experiments, and highlight several areas where the use of Internet-based experimentation offers accounting behavioral researchers new possibilities for exploring previously uninvestigated research questions.

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A Note about the Effect of Auditor Cognitive Style on Task Performance

Lori R. Fuller
Widener University

Steven E. Kaplan
Arizona State University

ABSTRACT: Previous research documents variation among auditors in terms of their cognitive style. Auditors have been classified as possessing an intuitive, analytic, or hybrid cognitive style. However, the potential implications of cognitive style upon auditor task performance have received little attention. Building upon the work of Chan (1996), this paper examines the role of "cognitive misfit" on auditor task performance. Cognitive misfit is a lack of fit between a person’s cognitive style and task characteristics. Participating auditors were required to perform two judgment tasks and complete a cognitive style questionnaire. Tests for an interactive task performance effect between task type and auditor cognitive characteristics were performed. As expected, auditor cognitive style significantly interacts with the task type. Analytic auditors performed better on the analytic task than the intuitive task. Likewise, intuitive auditors performed better on the intuitive task than on the analytic task. Limitations and implications of the research are discussed.

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