Advances in Accounting Behavioral Research: Volume 4

The current paper reviews behavioral research in financial accounting published in the decade 1990–1999. The review focuses on the usefulness of accounting information and the propensity of users to improperly integrate accounting information into their decisions. Prior research findings are organized in terms of the behavioral finance model of financial decision-making. The review of accounting behavioral research studies suggests that the findings of prior work are disjointed and perhaps contradictory. There does not appear to be a stream of research on a particular task, such as bankruptcy prediction, or a dominant research paradigm such as the lens model, which literature reviews on earlier periods were able to trace. Yet there is a strong theoretical basis for considering the role of individual behaviors in explaining the inability of financial statement users to predict earnings and cash flows with relative accuracy. Additional research that systematically examines individual bias could contribute to an understanding of usefulness of accounting information in a decision context.

Behavioral research in management accounting has made significant progress over the past half century. Although that progress has not often been smooth, it has demonstrated the need to pay careful and close attention to behavioral issues to promote effective organizational functioning. The range of issues addressed has expanded dramatically, consistent with the growth in the complexity of organizations, and the need to manage cross-national operations. This paper provides a review of major findings in the field. It then examines work that reflects on prior literature and puts forward proposals that may contribute to the advancement of the discipline. Finally, it considers some emerging research issues and suggests some conclusions.

The purpose of this paper is to provide insight regarding past, present, and future research in behavioral auditing to Ph.D. students and other researchers seeking to identify productive opportunities for future research. Our analysis is informed by recent publication trends and interviews with twenty-one active researchers likely to shape behavioral auditing research in the next decade. The results demonstrate a shift in research interest toward topics including auditor independence, corporate governance, emerging audit approaches, and new assurance services. This shift highlights a growing popularity of research motivated by emerging practice trends and issues receiving attention by the SEC, AICPA, and ASB. Our interviewees stressed the importance of integrating multiple methodologies in future research. Overall, our results demonstrate that behavioral auditing research remains an active and successful area of literature.

The issue of auditors' responsibility for financial statement fraud is a primary concern of most major auditing standard setting bodies in the world. This paper explores the actual and potential contribution of behavioral research in informing standard setters regarding auditors' consideration of fraud, and in assisting audit firms in implementing auditing standards in this area. As such, the paper should be of interest to both behavioral auditing researchers and standards setters.

As an organizing scheme for our review, we analyze the extant behavioral literature on fraud according to four basic issues identified by the Fraud Task Force of the U.S. AICPA's Auditing Standards Board: (1) the validity of the concept of a separate fraud risk assessment; (2) identification and evaluation of risk factors in fraud risk assessment; (3) the effects of decision aids or decision aid design on evaluation of fraud risk; and (4) the relationship between a separate fraud risk assessment and other phases of the audit. We note the importance of each issue, and how each is addressed in current U.S. auditing standards (SAS 82) and in the proposed revision of international auditing standards (ISA 240). Further, we assess how well behavioral research has addressed each issue, identify unmet research needs, and suggest how behavioral studies could aid in addressing those needs.

Behavioral tax research investigates the behavior of tax practitioners and taxpayers, mostly in a judgment/decision-making (JDM) context. We review and evaluate behavioral tax research since 1993, and provide suggestions for the direction of future research.

Tax practitioner JDM research has had two main foci: reporting positions, and information search and knowledge. Both have been fruitful, and should continue to be so. We place particular emphasis on improving studies of reporting position, especially in the areas of measurement, and internal and external validity.

Research on taxpayer behavior has been more diffuse, perhaps overly so. The JDM research may be dichotomized between that using compensated subjects (economics-based) and that using uncompensated subjects (chiefly psychology-based). These form distinct bodies of research that often appear incompatible because of differing methods and theoretical underpinnings. In addition to the JDM literature, there is a large body of research on taxpayer attitudes. This group of papers is highly heterogeneous, differing widely in theoretical development and relevance.

We recommend, in conclusion, that future behavioral research in taxation be better grounded in social science theory, and that more attention be paid to the representativeness of subjects.

This paper proposes a framework for the future of behavioral accounting information systems (AIS) research. A broad definition of AIS research is adopted which provides for a breadth of contemporary research drawing heavily from both the accounting domain and the information systems domain. Further, arguments are made for why AIS research must become the primary stream of accounting research if the accounting domain's research is going to have an impact on practice and provide leadership in the accounting and auditing environment that is currently evolving. In essence, researching accounting as an information systems discipline is becoming imperative.

Recent research suggests that the firm's management control system (MCS) can have a significant and recursive influence on strategy formulation. We expand this discussion by arguing that the strategic role of MCS can be enhanced through its management of the firm's dynamic capabilities (Teece et al., 1997). Dynamic capabilities are the unique abilities to create and sustain competitive advantage based on a firm's processes (routines), positions (resources), and paths (strategic choices). We discuss various ways in which the MCS might more effectively help firms identify and build such dynamic capabilities. Specifically, we propose that this can be accomplished by: (1) increasing both management and employees' strategic understanding of the ongoing inventory of the firm's existing processes, positions, and paths, and (2) building new knowledge-generating mechanisms into these processes, positions, and paths. We offer a set of related research propositions for future studies and suggest behavioral research methods that can be used to investigate the propositions.

Auditors and audit researchers consider decision aids important for overcoming biases and for improving the effectiveness and efficiency of audits (see Messier, 1995 for a review). Decision aids are used to increase judgment consistency, and, therefore, have potential to improve both the effectiveness and efficiency of audits. This study investigates three levels of justification requirements (no justification, unconditional justification, and justification of disagreement) to determine their effects on decision-makers' agreement with an aid and performance in decision-making. We find that an unconditional justification requirement leads to better performance when there is no decision aid, but leads to no better performance or increased agreement with the aid when a decision aid is present. Justification of disagreement with a decision aid, however, leads to increased agreement with the aid's advice in all conditions. We also find partial support that justification of disagreement leads to better performance than unconditional justification. For those who would like to see a decision aid have more influence, justification of disagreement with a decision aid could be an easily and economically implemented management policy or software design component.

This study examines whether Lifestyle Preferences affect attrition or influence career attitudes of early-career public accountants. The research follows an initial sample of 253 newly-hired, entry-level public accountants (133 male accountants and 120 female accountants). Analysis of data on career attitudes and Lifestyle Preference collected after three-years indicates an association for female accountants' data but not for male accountants. The research also finds that career attitudes have higher explanatory power for intentions to remain in public accounting for female accountants than male accountants. While job satisfaction, liking one's job, and intentions to remain in public accounting were all associated with female accountants' level of effort to be successful, there was no association between effort and these variables for male accountants. The level of effort to be successful was significantly lower at the three-year point than for the same individuals at the entry point across the sample. Finally, the data indicate that, after two years of career experience, Lifestyle Preference and attrition were associated for female accountants.

This study examines the differences among several attitudinal variables using CPAs from three work settings. The work settings include public accounting, private industry accounting, and governmental accounting. This study uses General Linear Models to investigate the effect of work setting on the attitudinal variables of organizational commitment and job satisfaction and the effect of work setting on the behavioral variable of turnover intentions. Work setting was observed to significantly affect the reported levels of organizational commitment, job satisfaction, and turnover intentions. The results of the study also suggest that governmental CPAs and private industry CPAs do not differ with regard to the attitudinal variables addressed in this study.

The concept of organizational commitment has recently impacted the participative budgeting and employee performance streams of accounting research. Specifically, a series of studies by Nouri, Nouri and Parker have shown that an individual's level of organizational commitment negatively impacts budgetary slack and positively impacts employee performance (Nouri, 1994; Nouri & Parker, 1996a, Nouri & Parker, 1996b, Nouri & Parker, 1998). A related issue, which has seen little attention in accounting research, is the notion of what causes antecedes an individual's level of organizational commitment. The current study attempts to address this issue by investigating the relationship between an individual's perception of equity and organizational commitment. Using a cross-organizational design, measures of perceptions of pay and workload equity, organizational commitment, and self-rated performance were gathered from a sample of 105 employees from 15 organizations. In accordance with the study's hypotheses, results reveal that a significant portion of an individual's organizational commitment can be explained by his/her perception of pay equity and workload equity. Additional analysis reveals that perception of equity has a significant, direct effect on performance, but this effect is fully-mediated by organizational commitment.

Audit efficiency is a key to audit firm success in the competitive marketplace for audit services (Mock & Wright, 1993). Reducing planned audit hours is one strategy auditors can use to be more efficient (Bierstaker & Wright, 1998). Yet, anecdotal evidence from practicing auditors suggests they often use a “same as last year” approach and some prior research indicates that auditors tend to “anchor” on the prior year plan (Kinney & Uecher, 1982, Wright, 1988; Bedard, 1989; Mock & Wright, 1999).

This research provides evidence on auditors' willingness to depart from the prior year actual hours when developing a current year audit plan. An initial case presents auditors with a simple request to be efficient, a second case requests auditors to be efficient when presented with a prior year material error highlighted on the trial balance, and a third case requests auditors to be efficient when presented with a prior year material error in one audit area but no errors in other areas.

The results for all three cases indicate that auditors did not use a “same as last year” strategy. Instead they planned the current year audit hours significantly below the prior year actual hours and provided a variety of techniques that could be used to improve audit efficiency.

This laboratory experiment investigates the effects of a performance incentive scheme and financial audit threats on transfer price negotiations. Three hypotheses are developed, based on a review of transfer pricing, budget-goal setting, incentive, and auditing literatures. Experimental data are gathered over multiple periods of negotiations from forty-eight students, and are analyzed using repeated measure ANOVA. The outcome measured is firm profits. The results show that bonus incentive scheme and audit threats have no effect on firm profits. However, the interaction between the performance based bonus incentive scheme and an audit threat is significant. With both management controls, bonus incentive and audit threats, firm profits are significantly lower than under a bonus incentive scheme only. Possible reasons for these results are explored in the discussion section. In a deflationary pricing environment, study findings have implications for designing a negotiated transfer pricing mechanism in the presence of performance based incentive schemes and financial audit threats.

This paper reports the results of a study that was conducted to investigate the performance of senior-level business students as it pertains to recognizing certain clues or risk factors that are frequently associated with the misappropriation of entity assets. Based on three of the risk factors identified in SAS No. 82, an experiment was used to examine differences in performance based on academic major, fraud-specific knowledge, and certain experiences of the students.

The primary contributions of this study are the discovery that: (1) an increasing number of risk factors; (2) knowledge accumulated in an accounting curriculum; (3) reading additional articles on the topic of employee theft; and (4) direct encounters with employee theft in the workplace were positively and significantly associated with recognizing an increased possibility that employee theft may be occurring. The results also indicate that neither employer-provided fraud training, nor part-time work experience, helped the subjects recognize an increased level of vulnerability of an organization to employee theft.

It is widely accepted that allowing affected parties to participate in the resource allocation process is one way to create an atmosphere of outcome equity and process fairness, thereby maximizing desired attitudes (such as satisfaction) and behavioral intentions (such as commitment to perform). However, in certain business settings, participative decision-making may not be feasible and/or resources may be limited such that not everyone gets what they believe they deserve or need. For this reason, it is important to identify factors that can mitigate negative attitudes and behavioral intentions associated with perceptions of inequitable allocations or non-participative processes.

The current research provides evidence that if an employee assesses the net perceived benefit (NPB) of a decision outcome as positive they will, even in cases of a non-participative process or when the allocation of resources is not seen as fair, be satisfied with the outcome and express commitment to performing the required task. Further, this study found support for the suggestion that the presence of superior monitoring can favorably affect an employee's commitment to perform, particularly in cases when satisfaction is negatively impacted by non-participation and low NPB. This study demonstrates that personal attitudes, behavioral intentions, and organizational objectives can be more closely aligned through the appropriate use of monitoring and by making understandable how an allocation decision will provide benefits to affect individuals.

The extant accounting behavioral research related to decision aid impacts on user's decision-making has been limited over time due to the focus on decision outcomes to the neglect of the underlying decision processes and strategies. A primary barrier in moving the decision aid literature forward into the exploration of the black boxof human-computer interaction is the paucity of methods for accurately capturing the interaction process. This paper presents a conceptualization of a technique we refer to as replay process tracing that allows the researcher to recreate the precise session that a user has participated in with a decision aid. We subsequently operationalize this conceptualization through a working prototype model with advanced replay process tracing functionality.