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Abstract:
Previous research (Bell, Landsman and Shackelford, Journal of Accounting Research, 2001) provides survey evidence that, for the clients of a large audit firm, audit clients with higher perceived business risk bear the expected costs of this risk with higher audit fees. We examine this relation between audit fees and business risk for audit clients doing business in developing countries where bribery of top government officials is accepted business practice. We hypothesize that bribery-paying clients impart potential legal and reputation costs on auditors and hence have higher business risk. Our evidence indicates that audit fees were higher for clients that disclosed paying bribes and for those that had not disclosed paying bribes but had operations in developing countries in which bribery was an acceptable form of business conduct. We conclude that the evidence is consistent with an audit market where audit firms knowingly assess business risk at the client level, then pass its expected costs to the client in the form of higher audit fees. Our evidence is inconsistent with an audit market that does not price business risk, or where auditors cross-subsidize fees between high and low risk clients as modeled by Morgan and Stocken (Review of Accounting Studies, 1998).

audit fees, audit risk, economics of auditing, corporate misconduct, corporate control, bribery

Abstract:
Previous research provides evidence that, for the clients of a large audit firm, audit clients with higher perceived business risk bear the expected costs of this risk with higher audit fees. We extend the literature, which focuses on the relation between litigation risk and audit fees, by examining alleged client misconduct that is not illegal but possibly increases business risk. In particular, we examine the relation between audit fees and business risk for audit clients doing business in developing countries where bribery of top government officials has been accepted business practice. We hypothesize that bribery-paying clients are riskier both because of client business risk and audit business risk. Using data collected from SEC filings and audit fee data in the 1970s, prior to the passage of the Foreign Corrupt Practices Act, we provide evidence that audit fees were higher for clients that disclosed paying bribes. This evidence is consistent with an audit market where auditors assess business risk at the client level, then pass its expected costs to the client in the form of higher audit fees.

Audit fees, audit risk, economics of auditing, corporate misconduct, bribery

Abstract:
Managers, investors, and regulators have expressed concerns about the high costs of complying with the Sarbanes-Oxley Act of 2002 (SOX). This paper introduces a new measure of actual compliance costs to facilitate an objective large-scale study of accelerated filers. We find that (i) the annual SOX compliance costs range, on average, from 0.289% to 0.618% of sales in each of the four years after SOX was enacted, (ii) compliance costs exhibit substantial variation across firms and industries, (iii) firms that reported deficiencies in internal controls had significantly higher compliance costs, and, (iv) smaller firms incurred greater SOX compliance costs relative to sales than larger firms. For the majority of accelerated filers, we document significant SOX compliance costs that exceed the SEC's expectations of compliance costs. Nevertheless, we also find that almost one out of every four accelerated filers had costs as low as the SEC expectations in each of the compliance years. This empirical evidence is useful in considering future amendments to SOX and in expanding our knowledge about the economic implications of securities' regulations.

Abstract:
This paper investigates operational hedging against severe disruptions to normal operations. It offers a new method to evaluate the extent that operations policy serves as a hedge against adverse circumstances. We apply the proposed method to explore how supply chain characteristics affect the responses of airlines to the acute demand fall off after the September 11 terrorist attacks. Results indicate that operational hedging vehicles (fleet standardization, high fleet utilization, an aircraft ownership policy rather than leasing, and international operations) are more powerful in protecting firms than using financial instruments. The study contributes in guiding managers as to how operations policy can serve as an imperative factor in mitigating exposures to low-end performance levels.

Operations policy, Hedging,Airlines, Stochastic dominance

Abstract:
We argue that the mortgage meltdown can be considered a “normal accident”. Our analysis suggests that the mortgage industry’s complex and tightly coupled technology made it vulnerable to failure, irrespective of the level of greed and fraudulent behavior exhibited by mortgage industry executives. Our normal accident analysis also suggests that insufficient regulatory oversight contributed to the debacle. But our analysis suggests that simply increasing the amount of regulation over the mortgage industry is unlikely to reduce its susceptibility to failure. Indeed, if inappropriately designed, increasing the amount of regulation could increase the likelihood of future failure.

mortgage meltdown, normal accidents, regulation of financial industry

Abstract:
We analyze the mortgage meltdown as a “normal accident” (Perrow, 1984). We begin by briefly outlining normal accident theory; both Perrow’s original version and Mezias’ (1994) subsequent extension. We then use normal accident theory to analyze the mortgage meltdown and draw a few insights from our account. We then consider the relationship between normal accidents and wrongdoing; a vexing question for both normal accident theory and observers of the meltdown. We conclude by briefly contemplating the policy implications of our analysis.

Mortgage Meltdown, Financial Crisis, Normal Accident

Abstract:
The purpose of this paper is to review the evolution of management accounting research in the United States. While the development of management accounting research in the UK generally followed sociological and psychological lines of inquiries, the US work has been much more based on operations research (in the 1960s and early 1970s) followed by an emphasis on economics-based work. I surmise that the different emphases derive from the influence of the Ford Foundation on business schools in the US. I conclude with concerns about the future of management accounting research in the US.

Management accounting; Management accounting research; Business school research

Abstract:
This article examines the "journey" of management accounting education over the past 50 years, evaluates the state of the field today, and presents my personal observations about teaching approaches. I observe that we have seen a substantial addition of management accounting courses to business school curricula, and changes in what was conventionally known as "cost accounting" courses, over the past 50 years. In recent years, innovative topics have come primarily from practice and from empirical research about practice. The introduction of these innovations into courses, and the expansion of management accounting in business school curricula, has resulted in a field that is alive and well in academia. The future demand for management accounting courses may be in some jeopardy, however, because students might not see good job opportunities in management accounting. Management accounting educators must address these problems to avoid enrollment declines in management accounting. The way we teach management accounting can increase the value of our students and mitigate possible enrollment declines. By focusing on problem-solving skills and the organizational context of decisions, rather than the "facts" of management accounting methods, we can educate students to be creative problem solvers who add substantial value to their organizations.

Abstract:
This paper describes conditions under which both conventional costing and linear activity-based costing can yield poor approximations to actual expenditures. We use a simulation approach based on data from a field experiment in a hospital to estimate how the introduction of a new anesthetic would reduce the demand for nursing services in post-surgery recovery rooms. Based on these simulations of the change in demand for nursing services from using the new anesthetic, we estimate the change in nursing resources that would be implied by (1) the hospital's conventional costing system, (2) "linear activity-based costing", and (3)costing that takes into account the joint and indivisible provision of nursing services caused by the hospital's staffing and compensation policies. Joint staffing occurs because nurses can serve more than one patient at a time. Indivisible staffing occurs because nurses typically worked in four hour shifts instead of by piecework.

The results show that conventional costing understated the estimated impact of the new anesthetic because its cost driver was not directly affected by the introduction of a new anesthetic. By contrast, linear activity-based costing substantially overstated the effects of the new anesthetic on nursing resources. This is because it assumed a change in the provision of nursing services proportional to the change in demand for nursing services, instead of taking into account the joint and indivisible nature of nursing services.

These results for conventional costing support familiar criticisms of conventional costing systems. The results for linear activity-based costing support Noreen's (1991) contention that linear activity-based costing may not provide reliable signals for decision making if resources are supplied on a joint or indivisible basis.

Abstract:
This paper describes conditions under which both conventional costing and linear activity-based costing can yield poor approximations to actual expenditures. We use a simulation approach based on data from a field experiment in a hospital to estimate how the introduction of a new anesthetic would reduce the demand for nursing services in post-surgery recovery rooms. Based on these simulations of the change in demand for nursing services from using the new anesthetic, we estimate the change in nursing resources that would be implied by (1) the hospital's conventional costing system, (2) "linear activity-based costing", and (3)costing that takes into account the joint and indivisible provision of nursing services caused by the hospital's staffing and compensation policies. Joint staffing occurs because nurses can serve more than one patient at a time. Indivisible staffing occurs because nurses typically worked in four hour shifts instead of by piecework.

The results show that conventional costing understated the estimated impact of the new anesthetic because its cost driver was not directly affected by the introduction of a new anesthetic. By contrast, linear activity-based costing substantially overstated the effects of the new anesthetic on nursing resources. This is because it assumed a change in the provision of nursing services proportional to the change in demand for nursing services, instead of taking into account the joint and indivisible nature of nursing services.

These results for conventional costing support familiar criticisms of conventional costing systems. The results for linear activity-based costing support Noreen's (1991) contention that linear activity-based costing may not provide reliable signals for decision making if resources are supplied on a joint or indivisible basis.

Abstract:
This paper investigates the effects of the Ford Foundation's business school reform efforts in the 1950s on managerial accounting research. The results, based on a study of the managerial accounting research literature from 1926 through 1980, suggest that the reformers significantly affected research methods used, the source disciplines for research, and authorship by practitioners. Apparently, the reform movement created a shift in the literature unparalleled in the history of managerial accounting research.

Abstract:
This paper examines the impact of the Ford Foundation's business school reform efforts in the 1950s and the early 1960s on the nature of managerial accounting research. I find a significant change in the literature along the line suggested by the reformers. The business school reformers expected the initial effects of the reform movement to be limited to a few select universities however my results indicate the initial effects were more widespread than they expected. The results provide a historical perspective on recent criticisms of managerial accounting research. By increasing academic respectability managerial accounting researchers may have increased the gap between research and practice while closing the gap between business school academics and their colleagues in other academic disciplines.