The ABO Reporter

Have You Seen…?

By John T. Rigsby
Mississippi State University

I would appreciate hearing from any section members with suggestions for papers you feel would be of interest to others and that should be included in this column in the future. Please send any citations to me at

Anderson, U., K. Kadous, and L. Koonce, "The Role of Incentives to Manage Earnings and Quantification in Auditors’ Evaluations of Management-Provided Information," Auditing: A Journal of Practice & Theory (2004, Vol. 23, No. 1): pp. 11-27.

The authors examine the influence of 1) quantification of management explanations and 2) managers’ incentives to manage earnings upon the persuasiveness of management-provided explanation for an unexpected fluctuation in revenue. The findings indicate that the persuasiveness of managers’ explanations is determined primarily by their incentives to manage earnings. Such a focus implies that when the likelihood of earnings management appears low, auditors fail to take into account information in the quantified explanation that is arguably relevant to their planning judgments.

Bedard, J. and K. Johnstone, "Earnings Manipulation Risk, Corporate Governance Risk, and Auditors’ Planning and Pricing Decisions," The Accounting Review (2004, Vol. 79, No. 2): pp. 277-304.

The authors examine auditors’ assessments of earnings manipulation risk and corporate governance risk on planning and pricing decisions. They find that auditors plan increased effort and billing rates for clients with earnings manipulation risk, which relationship increases for clients that also have heightened corporate governance risk.

Cavalluzzo, K. and C. Ittner, "Implementing Performance Measurement Innovations: Evidence from Government," Accounting Organizations and Society (2004, Vol. 29, No. 314): pp. 243-267.

The authors use data from a government-wide survey to examine factors influencing the development, use and perceived benefits of results-oriented performance measures in government activities. They find the extent of performance measurement and accountability are positively associated with greater use of performance information for various purposes, among other findings.

Chaudhuri, A., S.A. Khan, A. Lakshmiratan, A. Py and L. Shah, "Trust and Trustworthiness is a Sequential Bargaining Game," Journal of Behavioral Decision Making (2003, Vol. 16, No. 5): pp. 331-340.

A two-person extensive form bargaining game is used to explore individuals’ trusting and reciprocal behavior and how those relate to their scores on a trust survey. The authors find that the 'self-interested’ outcome is rejected by a majority of individuals. Individuals scoring high on the trust survey are both trusting and are also trustworthy, in that they reciprocate others’ trust. Individuals with low trust scores often exhibit trust but are not trustworthy.

Chang C. J., and J. Ho, "Judgment and Decision Making in Project Continuation: A Study of Students as Surrogates for Experienced Managers," ABACUS (2004, Vol. 40, No. 1): pp. 94-116.

The authors examine the efficacy of using students as surrogates for experienced managers in escalation studies. They found significant differences in the judgments used by students and managers in evaluating continuance of a project. The results suggest that caution is needed in generalizing student-based escalations findings to real-world business settings.

DeZoort, F.T., D. Hermanson, and R. Houston, "Audit Committee Support for Auditors: The Effect of Materiality Justification and Accounting Precision," Journal of Accounting and Public Policy (2003, Vol. 22, No. 2): pp. 175-199.

The authors examine whether the auditor’s materiality justification and the precision of the accounting issue affects audit committee members’ support for the auditor in an auditor-management disagreement. The findings indicate that audit committee members provide greater support for the auditor when the auditor’s materiality justification include both quantitative and consequences-oriented factors and when the accounting issues are subject to precise measurement. The findings also indicate more experienced audit members are more supportive of the auditor.

Goodwin, J., "Auditors’ Conflict Management Styles: An Exploratory Study," ABACUS (2002, Vol. 38, No. 3): pp. 378-405.

The author explores the conflict management styles used by auditors when resolving disputes with clients concerning financial statement issues. Rahim’s conflict management instrument was used to establish both the styles generally used and also those used in a scenario concerning possible inventory obsolescence. The findings indicate that auditors primarily use the integrating style to resolve disputes. The compromising and dominating styles are used to a lesser extent, while the obliging and avoiding styles are rarely used.

Hoffman, V., J. Joe, and D. Moses, "The Effects of Constrained Processing on Auditors’ Judgments," Accounting Organizations and Society (2003, Vol. 28, No. 7/8): pp. 699-714.

The authors examine whether constraining experienced auditors’ processing by having them process evidence in a pre-established sequence prevents them from using their usual processing strategies and thereby affects their judgments. The authors found experienced auditors’ going-concern judgments differed from inexperienced auditors’ judgments only when processing was unconstrained. The findings indicate that failure to consider how experienced auditors process evidence can result in inadvertently adopting control techniques that limit the generalizability of the results.

Nelson, F.T., R. Ratliff, G. Steinhoff, and G. Mitchell, "Teaching Logic to Auditing Students: Can Training in Logic Reduce Audit Judgment Errors?" Journal of Accounting Education (2003, Vol. 21, No. 3): pp. 215-237.

Logic is an important component of 'critical thinking' and has been called the mother of the discipline of auditing. To evaluate its usefulness audit judgements of students trained in logic, students not trained in logic, and experienced auditors were evaluated. Students trained in logic outperformed students not trained in logic and also outperformed experienced auditors in their ability to discern valid versus invalid argument forms. Experienced auditors outperformed trained students in their abilities to discern believable versus less believable argument premises.

Nelson, M.W., J. Elliott, and R. Tarplay, "How Are Earnings Managed? Examples from Auditors," Accounting Horizons (2003, Vol. 17, Supplement): pp. 17-35.

The authors report descriptive evidence about how managers attempt to manage earnings based on a sample of 515 earnings-management attempts obtained from a survey of 253 experienced auditors. They also link their findings to recent SEC Accounting and Auditing Enforcement Releases that illustrate extreme versions of the specific approaches identified by participants in the study.

Newell, B., T. Rakovo, N. Weston, and D. Shanks, "Search Strategies in Decision Making: The Success of ’success,'" Journal of Behavioral Decision Making (2004, Vol. 17, No. 2): pp. 117-137.

Examination of search strategies has tended to focus on choices determined by decision makers’ personal preferences among relevant cues, and not on learning cue-criterion relationships. The authors conducted an empirical analysis of cue search for environments with objective criteria, and cues were evaluated on the basis of validity, discrimination rate, and success. While finding a high degree of individual variability, success is found to be a key determinant of search.

Solomon, I. and K. Trotman, "Experimental Judgment and Decision Research in Auditing: The First 25 Years of AOS," Accounting, Organizations and Society (2003, Vol. 28, No. 4): pp. 395-412.

The authors review papers published in AOS for the period 1976 to 2000 that report auditing judgment and decision experiments, as well as papers that attempt to influence the future directions of such research. They find that these studies are a significant component of audit judgment and decision literature and the numbers of citations compares favorably with other leading journals.

Vanstraelen, Ann, "Going Concern Opinions, Auditor Switching, and the Self-fulfilling Prophecy Effect Examined in the Regulatory Context of Belgium," Journal of Accounting, Auditing and Finance (2003, Vol. 18, No. 2): pp. 231-253.

The author examines the threat of loss resulting from auditor switching and client bankruptcy in the regulatory context of Belgium, which requires that auditors be hired for a three-year period. Consequently, the threat to switch auditors is potentially more credible in the third year than the previous two years. The findings indicate that mandatory terms influence the associations between going-concern and auditor switching.

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