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Abstract:
In this study we examine differences between sophisticated
and unsophisticated investors' incorporation of information
about the accuracy of sell-side analysts' revisions of quarterly earnings forecasts. Our results indicate that sophisticated
investors' weights on information cues associated with
accuracy more closely match the weights derived from
environmental models of forecast accuracy. Further, our findings suggest that sophisticated investors' strategies better reflect the costs and benefits of using accuracy cues that provide
statistically significant, but economically small,
explanatory power for forecast accuracy. Our evidence is
consistent with sophisticated investors having greater knowledge about the factors that are related to forecast accuracy and
exhibiting more adaptive cue-weighting strategies.

Analyst forecast revisions; Market reaction; Investor sophistication; Cue weighting; Adaptive decision-making

Abstract:
We examine the effects of analysts' celebrity on investor reaction to earnings forecast revisions. We measure celebrity as the quantity of media coverage analysts receive in sources included in the Dow Jones Interactive database, and find that media coverage is positively related to investor reaction to forecast revisions. The effect of celebrity on the reaction to forecast revisions remains significant after controlling for forecast performance variables examined in prior studies (ex post forecast accuracy, ex ante accuracy, award status, and other variables shown to be related to forecast accuracy). While these results are consistent with the familiarity of the analyst's name affecting the market reaction, we cannot rule out that our measure of celebrity is correlated with error in the performance measures we examine and/or correlated with other unexamined dimensions of forecast performance. A content analysis of a random subsample of the media coverage of our sample analysts suggests that our findings likely are not due to the increased availability of forecast revisions. Finally, an investigation of the excess returns around the quarterly earnings announcement date suggests that market participants react too strongly to forecast revisions issued by analysts with high levels of media coverage. Taken together, these findings suggest that an analyst's level of media coverage can affect the initial market reaction to his forecast revisions.

Analyst forecast revisions, investor reaction, celebrity, media coverage, forecast

Abstract:
Information relevance advisory services offer growth opportunities for accountants in CPA firms, but we know little about the types of knowledge needed to provide high quality advice. In a two-stage experiment, accountants with different management and public accounting experience (that we suggest lead to different types of knowledge) receive task information in alternative formats, and develop relevant information for a client's decision. We find that participants are more likely to choose an appropriate problem representation when they receive an appropriate task format or when they have more management or public accounting experience (stage one). Also, when participants choose an appropriate problem representation, more management accounting experience improves their development of relevant information, but more public accounting experience does not (stage two). Our results suggest that tailored task presentation and domain experience that facilitates acquisition of multiple knowledge types improve accountants' information relevance advice.

Information relevance assurance; Domain experience; Task presentation format; Problem representation

Abstract:
Information relevance advisory services offer growth opportunities for accountants in CPA firms, but we know little about the types of knowledge needed to provide high quality advice. In a two-stage experiment, accountants with different management and public accounting experience (that we suggest lead to different types of knowledge) receive task information in alternative formats, and develop relevant information for a client's decision. We find that participants are more likely to choose an appropriate problem representation when they receive an appropriate task format or when they have more management or public accounting experience (stage one). Also, when participants choose an appropriate problem representation, more management accounting experience improves their development of relevant information, but more public accounting experience does not (stage two). Our results suggest that tailored task presentation and domain experience that facilitates acquisition of multiple knowledge types improve accountants' information relevance advice.

Information relevance assurance; Domain experience; Task presentation format; Problem representation

Abstract:
We examine the effects of analysts' celebrity on investor reaction to earnings forecast revisions. We measure celebrity as the quantity of media coverage analysts receive in sources included in the Dow Jones Interactive database, and find that media coverage is positively related to investor reaction to forecast revisions. The effect of celebrity on the reaction to forecast revisions remains significant after controlling for forecast performance variables examined in prior studies (ex post forecast accuracy, ex ante accuracy, award status, and other variables shown to be related to forecast accuracy). While these results are consistent with the familiarity of the analyst's name affecting the market reaction, we cannot rule out that our measure of celebrity is correlated with error in the performance measures we examine and/or correlated with other unexamined dimensions of forecast performance. A content analysis of a random subsample of the media coverage of our sample analysts suggests that our findings likely are not due to the increased availability of forecast revisions. Finally, an investigation of the excess returns around the quarterly earnings announcement date suggests that market participants react too strongly to forecast revisions issued by analysts with high levels of media coverage. Taken together, these findings suggest that an analyst's level of media coverage can affect the initial market reaction to his forecast revisions.

Abstract:
In this paper, we develop sixteen testable propositions about variables that moderate a positive relation between monetary incentives and task performance. The propositions are derived from a comprehensive review of the literatures in accounting, economics, finance, management, psychology, and other areas. We organize the propositions into four sections: person variables, task variables, environmental variables, and incentive-scheme variables. In addition, our focus is on moderators that are of significance to accounting researchers and accounting-related tasks as well as to organizations in general. Finally, we discuss possible directions for future research on the efficacy of monetary incentives for improving task performance.

Abstract:
This study examines whether certain types of financial reporting fraud result in a higher likelihood of litigation against independent auditors. We expect that auditors are more likely to be judged responsible for failing to detect commonly occurring frauds or those that stem from fictitious transactions. We examine companies with SEC Accounting and Auditing Enforcement Releases and designate whether each fraud present in their financial statements is common and/or arises from fictitious transactions. We then examine whether these types of fraud are related to auditor litigation in analyses that control for various client, auditor and case characteristics. Our results provide some support for our two primary hypotheses-auditors are more likely to be sued when the financial statement frauds are of a common variety or when the frauds arise from fictitious transactions.

Abstract:
Prior research provides evidence that auditors encounter difficulty in applying the error frequencies they have experienced to judgments of the probability that an audit objective is violated given a particular transaction cycle. This may occur because of a mismatch between the organization of the judgment task (in which transaction cycle is the more important organizing dimension) and the organization of auditors' knowledge (in which audit objective is the more important organizing dimension). We performed an experiment to test the effectiveness of two decision aids in counteracting this difficulty: (1) a checklist-style decision aid which facilitates knowledge retrieval and (2) a decomposition-and-mechanical-aggregation decision aid which facilitates both knowledge retrieval and aggregation. Our results indicate that the checklist aid improved the degree to which auditors' judgments reflected their experienced frequencies to a small degree, but that the mechanical-aggregation aid improved auditors' judgments to a great extent, completely counteracting the effect of the mismatch in dimension importance between task organization and knowledge organization.

Abstract:
This study examines whether frequent and fictitious financial statement frauds increase the likelihood of litigation against independent auditors. We expect that auditors are more likely to be judged responsible for failing to detect frauds with these characteristics. We use companies with SEC Accounting and Auditing Enforcement Releases for our fraud sample, then designate whether the types of fraud present in their financial statements are frequent and fictitious. We examine whether these fraud characteristics are related to auditor litigation in analyses that control for various client, auditor, and case characteristics. Our results provide some support for our two primary hypotheses -- auditors are more likely to be sued when financial statement frauds are frequent and fictitious.