1995, Volume 7
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The Effects of Pay Schemes and Probabilistic Management
Audits on Subordinate Misrepresentation of Private Information: An Experimental
Investigation in a Resource Allocation Context, C. Chow, M. Hirst,
and M. Shields
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Internal Auditors' Memory for Financial-Statement Errors,
B. Church and A. Schneider
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An Exploratory Examination of International Differences
in Auditors' Ethical Perceptions, J. Cohen, L. Pant, and D. Sharp
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The Relationship Between Budgetary Management Style
and Organizational Commitment in a Not-for-Profit Organization, F.
Collins, S. Lowensohn, M. McCallum, and R. Newmark
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A Note on the Application of the Behavioral Life-Cycle
Model in Governmental Lending Decisions, S. Reed, J. Strawser, and
R. Strawser
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Factors Affecting Responsibility Assessments After an
Audit Failure, M. Rennie
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Control as an Exchange Process: A Power Control Framework
of Organizations, Seleshi Sisaye
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The Effects of Pay Schemes and Probabilities Management
Audits on Subordinate Misrepresentation of Private Information: An Experimental
Investigation in a Resource Allocation Context
Chee W. Chow, Mark Hirst, and Michael
D. Shields
This experimental study tests the predicted effects of three performance-contingent
control mechanisms on a subordinate's misrepresentations of his or her
private information to his or her superior: linear profit sharing, linear
profit sharing plus a probabilistic management audit, and Groves. The results
show that linear profit sharing together with a probabilistic management
audit significantly reduces the rate of subordinate misrepresentations
compared to a mechanism with only a linear profit sharing scheme. The results
also show that linear profit sharing in conjunction with a probabilistic
management audit is more effective at deterring subordinate misrepresentations
than is the Groves scheme. These results provide support for the conjecture
that a sect of controls which individually are imperfect can be as effective
as a more complex control mechanism used alone. An implication is that
there is need for additional research that examines sets of controls as
opposed to studies that focus on a single control. The results also provide
a rationale for the frequently observed practice of firms using linear
profit sharing pay schemes and probabilistic management audits, as opposed
to the more complex control mechanisms developed by analytical research.
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Internal Auditors' Memory for Financial-Statement Errors
Bryan K. Church and Arnold Schneider
Recent studies have examined external auditors' cognitive abilities, including
their abilities to generate financial-statement errors from long-term memory
(LTM). Although internal auditors typically perform some financial auditing,
no research study has investigated their abilities to generate financial-statement
errors from LTM. The purpose of this study is to investigate (1) the quality
of errors generated by internal auditors and (2) the effect of an inherited
error on their generation of additional errors. We conducted a laboratory
experiment and found that the quality of errors generated by internal auditors
is affected by whether they have prior public accounting experience. In
addition, we found limited evidence that an inherited error interferes
with internal auditors' generation of additional errors from the same transaction
cycle as that of the inherited error.
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An Exploratory Examination of International Differences
in Auditors' Ethical Perceptions
Jeffrey R. Cohen,
Laurie W. Pant, and David J. Sharp
This study examines differences in the ethical decision-making of auditors
in one multinational public accounting firm. Subjects were drawn from three
groups: Latin America, Japan, and the United States, that have been shown
by Hofstede (1980, 1991) to differ on important cultural dimensions expected
to influence ethical decision-making. subjects were presented with questionnaires
(translated into the appropriate languages) containing eight vignettes,
each describing a possibly questionable action related to public accounting
practice. For each vignette, subjects provided three responses: the likelihood
i) that they would perform the action; ii) that their colleagues would
perform the action; and iii) the morality of the action. The strongest
differences emerged in the Latin-U.S. comparisons, countries that differed
most on the individualism and power distance dimensions. The results of
the study supported our expectations that culture was related to differences
in both subjects' ethical evaluations, and in the likelihood that they
or their colleagues would perform the action. We also found evidence of
a social desirability bias in all three groups, and that its magnitude
varies between countries. Implications of this for future cross-cultural
behavioral and accounting ethics research are discussed.
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The Relationship Between Budgetary Management Style
and Organizational Commitment in a Not-for-Profit Organization
Frank
Collins, Suzanne
H. Lowensohn,
Mary H. McCallum and Richard
I. Newmark
Not-for-Profit organizations are concerned about their employees'
organizational commitment, especially in difficult economic times. If economic
difficulties force the use of more "for profit" budgeting and performance
evaluation measures, maintaining commitment may be even more problematic.
Consequently, the present study was undertaken in a not-for-profit organization
that had recently implemented "for profit" control techniques and was designed
to determine: (1) the effects of three budgetary management styles (profit-conscious,
budget-constrained, and relatedness) and crisis on organizational commitment,
and (2) if feelings of role stress moderate those relationships. Three
hundred forty-four non-supervisory employees of a large charitable organization
were surveyed, and the results revealed that the relatedness budgetary
management style was positively and directly related to organizational
commitment, while profit-conscious and budget-constrained styles and organizational
crisis were indirectly related to organizational commitment. These results
suggest that this organization had not yet successfully implemented their
new, "for profit" approach.
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A Note on the Application of the Behavioral Life-Cycle Model in
Governmental Lending Decisions
Sarah A. Reed, Joyce A. Strawser, and Robert H. Strawser
This study employs the Shefrin and Thaler (1988) Behavioral Life-Cycle
Model to examine policy makers' preferences for framing public funding
requests. Five cases which relate to the public borrowing activities of
a local policy department were developed to test the research hypotheses.
Four scenarios required participants to choose between two spending decisions,
where durability (current consumption versus capital goods) and concertedness
(tangible versus intangible) of the purchased goods or services were systematically
varies. A fifth scenario required the participants to choose between two
loan repayment schedules (long-term versus short-term), given that the
durability of the item financed was varied. Empirical support was obtained
for the perceived importance of durability and concreteness when assessing
asset benefits to be achieved from a given project, as well as for the
perceived attractiveness of matching long-term benefits with related costs.
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Factors Affecting Responsibility Assessments After
an Audit Failure
Morina Rennie
The cognitive process by which individuals react to an audit failure
can be depicted as the mental simulation of counterfactual scenarios. Further
the extent to which an alternative outcome can be imagined is proposed
to influence responsibility assessments related to an audit failure.
Participants in an experiment assessed responsibility for an audit failure
in a courtroom scenario. Three factors predicted to affect counterfactual
simulation were manipulated in the experiment: pre-outcome unusualness,
existence of a close counterfactual, and alterability of the outcome. Responsibility
assessments were observed to be influenced by the interactions of these
factors.
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Control as an Exchange Process: A Power Control Framework
of Organizations
Seleshi Sisaye
This paper develops a power control contingency framework of accounting
to identify and describe the types of control exchange systems in complex
organizations. The paper makes the basic assumption that resource allocation
is critical to planning and control processes. The framework is an integrated
approach that incorporates both the structural-functional (SF)-rational
and conflict-pluralistic (CP)-political choice models of social organizations
in order to study control systems as exchange processes in complex organizations.
The power control framework proposes that the type of resource exchange:
cooperative, competitive, distributive and unequal, that occurs in organizational
decisions is a function of both the basis of power: SF-rational or CP-political,
and the perceived availability of resources: relative slack or relative
scarcity.
However, the framework recognizes the diversity of organizational control
systems and does not claim to address all forms of control systems. It
suggests that the classification of control systems as forms of resource
exchange depends on the dominant characteristics of a given organization.
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