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Abstract:
Prior research indicates that greater transparency in reporting formats facilitates the detection of earnings management. The current study hypothesizes and demonstrates that greater transparency in comprehensive income reporting also reduces the likelihood that managers will engage in earnings management in the area of increased transparency. In our experiment, 62 financial executives and chief executive officers decide which available-for-sale security to sell from a portfolio. We manipulate the transparency of comprehensive income reporting and the relationship of projected earnings to the consensus forecast in a 2 x 2 between-subjects design. When projected earnings are below (above) the consensus forecast, participants sell securities that increase (decrease) earnings. However, the rarely-used, more transparent format for reporting comprehensive income significantly reduces both income increasing and income decreasing earnings management. Participants in the less transparent setting indicate that earnings management attempts will not be obvious to readers, will improve stock prices, and have no effect on management's reputation for reporting integrity. Conversely, respondents in the more transparent condition suggest that earnings management will be obvious to readers, harmful to stock prices, and damaging to reporting reputation. Results of this study suggest that more transparent reporting requirements will reduce earnings management in the area of increased transparency or change the focus of earnings management to less visible methods.

financial reporting, transparency, earnings management, comprehensive income, SFAS 130

Abstract:
Prior research indicates that greater transparency in reporting formats facilitates the detection of earnings management (EM). The current study investigates whether greater transparency also reduces EM attempts. In our experiment, 62 financial executives and chief executive officers decide which available-for-sale security to sell from a portfolio. We manipulate the transparency of comprehensive income reporting and the relationship of projected earnings to the consensus forecast in a 2 x 2 between-subjects design. When projected earnings are below (above) the consensus forecast, participants sell securities that increase (decrease) earnings. However, the rarely-used, more transparent format for reporting comprehensive income dramatically reduces both income increasing and income decreasing EM. Participants indicate they believe EM in the less transparent setting will improve stock price and have no effect on their reputation for reporting integrity, whereas EM in the more transparent setting will damage both. Results of this study suggest that more transparent reporting requirements will reduce EM attempts or change the focus of EM attempts to less visible methods.

reporting transparency, earnings management, comprehensive income, SFAS 130

Abstract:
This study investigates the extent to which investors believe that enterprise resource planning (ERP) systems enhance firm value by examining changes in financial analysts' earnings predictions before and after they receive an announcement that a firm plans to implement an ERP system. A total of 63 analysts participated in a two (firm size: small and large) by two (firm health: unhealthy and healthy) randomized between-subjects design. The ERP announcement represented a within-subjects manipulation. The analysts' overall reaction to ERP implementation plans was positive, as mean post-announcement earnings forecasts were significantly higher than mean pre-announcement forecasts. Additionally, as expected, mean earnings forecast revisions in the small/healthy and large/unhealthy firm conditions were significantly greater than mean forecast revisions in the small/unhealthy firm condition. Experimental results from the current study support archival findings reported by Hayes et al. (2001), who explored the same research questions, among others, by examining cumulative abnormal returns surrounding ERP announcements.

Triangulation studies of this nature using multi-methods (e.g., behavioral versus archival) and complementary criterion variables (e.g., earnings forecasts versus cumulative abnormal returns) are important to social scientists, as they provide insight into the reliability, consistency and validity (both internal and ecological) of proposed theoretical relationships (Boyd et al. 1993; Flick 1992; Libby et al. 2001).

enterprise resource planning, ERP, investors, financial analysts, triangulation

Abstract:
Recent research indicates that managers minimize the probability of a negative earnings surprise at the actual earnings announcement date, in part, by issuing earnings preannouncements that understate positive earnings news and overstate negative news. However, there is little evidence of the effects of this strategy on actions by investors and their agents. We conduct an experiment to investigate experienced analysts' reactions to preannouncements that either understate, accurately state, or overstate the magnitude of either positive or negative earnings news. As predicted, firms with positive total news receive the highest revised forecasts of future earnings when the preannouncement understates the magnitude of the positive news. Negative total news firms receive the highest revised forecasts when the preannouncement overstates the magnitude of the negative news. This suggests a possible benefit to preannouncement strategies that avoid negative actual earnings surprises, holding constant the total earnings surprise. Our results also provide insights into analysts' beliefs about the preannouncing firms that employ these strategies.

Abstract:
The first objective of the current study is to examine the extent to which financial auditors recognize heightened risks associated with an enterprise resource planning (ERP) system, as compared to non-ERP (legacy) system, in the presence of a control weakness over access privileges. The second objective is to assess the propensity of financial auditors to consult with information technology (IT) audit specialists within their firm when assessing ERP and non-ERP system risks in the planning stage of an audit. One hundred sixty five (165) auditors participate in an experiment in which we manipulate system type (ERP versus non-ERP) and measure auditor type (IT audit specialists versus financial auditors). Both auditor types indicate significantly higher business interruption, process interdependency and overall control risks with the ERP, as compared to the non-ERP, system. Additionally, while IT audit specialists assess significantly higher network, database and application security risks with the ERP system, financial audits do not recognize higher security risks in these areas. Perceived risk differentials from the non-ERP to the ERP system across all risk categories are significantly greater for IT audit specialists than financial auditors. Finally, financial auditors do not indicate a greater need to consult with IT audit specialists when auditing an ERP versus a non-ERP system, and, they are equally highly confident in the ability of financial audit teams to assess risks in both computing environments. Overall, evidence from this study suggests that financial auditors may be overconfident in their ability to assess ERP system risks.

enterprise resource planning, ERP, audit risks, business risks, audit specialists

Abstract:
Some research suggests that the implementation of enterprise resource planning (ERP) systems improves corporate performance (Hayes et al. 2001; Hunton et al. 2003) while other research indicates that the inclusion of non-financial performance incentives (NFPI) in executive compensation contracts also enhances performance (HassabElnaby et al. 2004). Since ERP systems are designed to capture key performance indicators that are both financial and non-financial in nature, the primary research question examined herein asks: Does the joint adoption of ERP and the use of NFPI yield a synergistic effect on corporate performance? In the current study, performance is reflected by return on assets (ROA) and return on stocks (ROS). Overall, study results indicate that the combined use of ERP and NFPI yields significantly higher (1) short-term and long-term ROA and ROS than ERP-only firms, and (2) short-term ROA and ROS and long-term ROS than NFPI-only firms. Research findings offer valuable insights into the theoretical and practical implications of jointly adopting ERP and NFPI.

Enterprise resource planning, non-financial performance measures, executive compensation contracts, corporate performance

Abstract:
We examine whether information in footnotes might lack reliability because auditors permit more misstatement in disclosed as opposed to recognized amounts. In both a stock-compensation and leasing setting, audit partners require greater correction of misstatements in recognized amounts than in equivalent disclosed amounts. Debriefing questions indicate that the partners make these decisions knowingly, even though they face greater client resistance to correcting recognized amounts, because they view recognized amounts as more material. Partners also spend more time on correction decisions for recognized information. While prior literature suggests that amounts are often relegated to footnotes because they are less reliable, our results suggest that the actual choice to disclose versus recognize can also reduce information reliability. These results have implications for the interpretation of prior research on the reliability of recognized and disclosed numbers, for financial-accounting standard setters who may want to consider the reliability effects of their recognition versus disclosure decisions, and for auditing standard setters who may wish to clarify auditors' responsibilities for preventing misstatements in disclosed amounts.

recognition, disclosure, reliability, stock options, leases, auditing

Abstract:
We conduct two experiments which demonstrate that the effect of earnings preannouncement bias on analyst forecasts depends on the form of the preannouncement and that the effect of preannouncement form does not become evident until the release of the actual earnings announcement. Preannouncement form (point, narrow range, wide range) has no effect on forecasts made immediately after the preannouncement. However, after the actual earnings announcement, the effect of preannouncement bias on analysts' reforecasts is magnified by a narrow range and reduced by a wide range, compared to a point estimate. These results suggest that treating range preannouncements and forecasts as equivalent to point estimates equal to the mean of the range, assuming that ranges of varying widths will trigger similar responses, and failing to consider behavioral effects after the release of actual earnings may paint an incomplete picture of how preannouncements and other forecasts affect analysts and investors.

preannouncements, earnings guidance, management forecasts, point estimate, range estimate, analyst forecasts

Abstract:
We examine whether analysts' incentives to maintain good relationships with management contribute to the optimistic/pessimistic within-period time trend in analysts' forecasts, controlling for management guidance, access to information, forecast revision likelihood, prior accuracy, experience, employer size, and other potential omitted variables. In our experiments, 81 experienced sell-side analysts from two brokerage firms predict earnings based on historical information and management guidance. Analysts' forecasts exhibit an optimistic/pessimistic pattern across the two timing conditions (early and late in the quarter), and the effect is significantly stronger when the analysts have a good relationship with management than when their only incentive is to be accurate. Debriefing results indicate that analysts are aware of this pattern of forecasts, and believe that this benefits their future relationships with management and with brokerage clients. The analysts most frequently cite favored conference call participation and information access when describing benefits from maintaining good relationships with management. Our results suggest that the optimistic/pessimistic pattern in forecasts is in part a conscious response to relationship incentives, that information access is perceived to be a major benefit of management relationships, and that recent regulatory changes may have lessened but have not eliminated this conflict of interests source.

Financial Analysts, Earnings Forecasts, Optimistic, Pessimistic, Forecast Bias

Abstract:
Prior research indicates that analysts do not fully adjust for the general downward bias in earnings guidance issued by management. We report the results of two experiments designed to investigate how guidance track record and analysts' incentives jointly explain the extent to which analysts adjust for guidance bias. Our results suggest that analysts with accuracy incentives adjust for management's track record of downwardly-biased guidance when the bias is relatively small (one cent), but those with relationship incentives do not. Furthermore, the difference in adjustment is larger when the bias track record is inconsistent than when it is consistent. Also, when guidance bias is larger (two cents) relative to smaller (one cent), analysts with relationship incentives partially adjust, as they appear to strike a balance between accuracy and their desire to please management. These findings hold implications for investors, regulators, and the interpretation of prior research.

management earnings guidance, track record, incentives, analyst forecasts

Abstract:
Prior research indicates that analysts do not fully adjust for the general downward bias in earnings guidance issued by management. We report the results of three experiments designed to investigate how cognitive factors, incentive effects and their interaction help to explain this phenomenon. Our results suggest that analysts do not adjust for the general tendency of companies to issue downwardly-biased guidance, but they do adjust after they learn about a firm's specific bias pattern over time. The degree of adjustment, however, depends on the interactive effects of analysts' incentives, and the consistency and magnitude of bias revealed by a company's guidance track record. Analysts with accuracy incentives adjust for management's track record of downwardly-biased guidance, but those with relationship incentives do not. Furthermore, the difference in adjustment between analysts with relationship and accuracy incentives is larger when the bias track record is inconsistent than when it is consistent. Also, when guidance bias is larger (two cents) relative to smaller (one cent), analysts with relationship incentives only partially adjust, as they appear to strike a balance between accuracy and their desire to please management. These findings have implications for investors, regulators, and the interpretation of prior research.

management earnings guidance, track record, incentives, analyst forecasts

Abstract:
A total of 83 experienced audit committee members participated in a two (whistle-blowing channel: non-anonymous or anonymous) by two (perceived reputation threat arising from the whistle-blowing allegation: low or high) between-participants experiment. Results indicate that audit committee members attributed lower credibility and allocated fewer investigative resources to whistle-blowing reports received through anonymous versus non-anonymous channels. The participants also ascribed lower credibility and provided fewer investigative resources when the whistle-blowing allegation reflected a potentially high threat to their reputations, as compared to a potentially low threat. A significant interaction term suggests that the perceived credibility difference between non-anonymous and anonymous reporting was (smaller) greater when perceived reputation threat was relatively (low) high. Finally, a path analysis reveals that the effect of whistle-blowing channel (perceived reputation threat) on investigatory resource allocation is mediated (moderated) by perceived credibility of the allegation. Overall, the research findings suggest that audit committee members might fail to sufficiently investigate whistle-blowing allegations received through anonymous whistle-blowing channels, and perceived reputation threats arising from allegations could worsen the situation in some circumstances.

Anonymous, Audit committee, Busy boards, Corporate governance, Sarbanes-Oxley, Whistle-blowing

Abstract:
Decision aids (DAs) are designed to assist and improve decision-making processes, and they have been incorporated into many professions, such as auditing, law and medicine. Yet, research findings regarding how DAs impact judgments and decisions has been somewhat mixed, often indicating a reluctance of experienced decision-makers to rely on the recommendations of DAs. One of the major criticisms of this line of research is that prior studies examining DA reliance have been conducted in artificial experimental settings using researcher-developed aids; thus, researchers and practitioners know very little about DA reliance in the field. The current study complements and extends prior DA research by examining the DA reliance behavior of professional buy-side financial analysts in a real world environment.

A large mutual fund company provided data on buy-side analysts’ earnings forecasts for four consecutive quarters. As part of the decision process, all of the analysts had a DA available to assist in making earnings forecasts. The results indicate that higher task ability is associated with greater DA reliance, increased performance-contingent incentives are related to decreased DA reliance, and more task complexity is associated with more DA reliance. Also, greater confidence in the DA heightened reliance, and DA confidence interacted with performance-contingent incentives. Finally, increased DA reliance was associated with more accurate earnings forecasts. These results provide valuable theoretical and practical insight into the use of an operational DA by professional decision-makers in a natural work environment.

decision aid reliance, financial analysts, forecast accuracy

Abstract:
This study examines the effects of conversation mode and split-attention communication training on driving performance. The study is based on an experiment where drivers with and without communication training (pilots vs. nonpilots) completed a simulated driving course while involved in one of three conversation modes: no conversation, conversation with passenger, or conversation on a hands-free cellular telephone. Results indicate that cellular telephone conversations consume more attention and interfere more with driving than passenger conversations. Cell phone conversations lack the nonverbal cues available during close-contact conversations and conversation participants expend significant cognitive resources to compensate for the lack of such cues. The results also demonstrate that communication training may reduce the hazardous effects of cell phone conversations on driving performance.

Abstract:
The current study examines the outcomes of three fraud brainstorming procedures—nominal group, round robin, and open discussion—via a randomized between-participant field experiment involving 150 audit clients and 2,614 auditors who participated in natural, hierarchical audit teams. The results indicate that nominal group and round robin brainstorming resulted in equivalent numbers of unique fraud risks and comparable increases in planned audit hours, while open discussion brainstorming yielded the least number of unique ideas and the smallest increase in planned audit hours. Furthermore, nominal group and round robin brainstorming yielded more changes/additions to the nature and timing of substantive testing than open discussion brainstorming. Study findings offer theoretical and practical insight into fraud brainstorming.

SAS 99, fraud, brainstorming, nominal group, round robin, open discussion, auditing, field experiment

Abstract:
The trend toward continuous monitoring of automated business transactions by the internal audit function is growing as organizations seek to improve internal control. In this study, we demonstrate that continuous monitoring and the time horizon over which performance-contingent incentives are based can interact, thereby yielding potential functional and dysfunctional effects on managerial decisions. Seventy-two experienced corporate managers completed a between-participants experiment that randomized monitoring frequency (periodic or continuous) and incentive horizon (short-term or long-term). We found that earnings management of real activities significantly decreased as the frequency of monitoring increased in the presence of a short-term incentive horizon - a functional effect. However, with a long-term incentive horizon, the participants' willingness to change the current level of investment in a risky but viable project significantly dropped as the frequency of monitoring increased, even though additional investment would enhance the likelihood of the project's eventual success - a dysfunctional effect. We also observed that more frequent monitoring significantly decreased the willingness of managers to continue with a risky but viable project regardless of incentive horizon and the effect was significantly pronounced in the presence of a short-term, relative to long-term, incentive horizon - another dysfunctional consequence. Implications of the research findings to theory and practice are discussed.

continuous monitoring, incentive compensation, earnings management, project continuation

Abstract:
Eighty-eight audit committee members participate in an experiment designed to investigate the effects of audit issue (adjustment versus restatement) and director status (single directorship versus multiple directorships) on the likelihood of accepting an auditor's recommendation. Results indicate that all participants are less likely to accept an auditor's restatement recommendation than adjustment recommendation. Further, directors holding multiple directorships are less likely to accept an auditor's restatement recommendation than directors with a single directorship. Analysis of post-experiment clinical debriefing items indicates that directors with multiple directorships are less willing to support restatements due to the potential adverse effects of restatements on their reputation capital.

Audit committee, busy director, reputation, restatement

Abstract:
The purpose of the current study is to examine the extent to which audit risk and litigation risk cause auditors to increase reliance on decision aids. These are particularly relevant issues in the era of Sarbanes-Oxley and abundant audit litigation, as decision aids hold the potential to improve audit quality; yet, immense legal and regulatory pressures on audit firms to improve audit quality could lead to a 'check list' mentality where auditors subordinate their audit judgments for the sake of compliance. Based on an experiment involving 118 audit practitioners, we find that auditors rely more on decision aid recommendations when either litigation risk (exogenous to the audit risk model) or internal control risk (endogenous to the audit risk model) is high relative to low. When litigation risk and internal control risk are simultaneously high, there is an interactive effect on decision aid reliance. Further analyses suggest that litigation risk amplifies the auditors' awareness of legal defensibility, which in turn increases decision aid reliance. Disturbingly, when both litigation risk and control risk are high, the auditors appear to deferentially follow the aid's advice to increase the legal defensibility of their decisions, even as their confidence in the quality of their decisions deteriorates.

litigation risk, internal control risk, decision aid reliance

Abstract:
We examine whether information in footnotes might lack reliability because auditors permit more misstatement in disclosed as opposed to recognized amounts. In both stock-compensation and lease settings, audit partners require greater correction of misstatements in recognized amounts than in equivalent disclosed amounts. Debriefing questions indicate that the partners make these decisions knowingly, even though they expect greater client resistance to correcting recognized amounts, because they view recognized amounts as more material. Partners also spend more time on correction decisions for recognized information. While prior literature suggests that amounts are often relegated to footnotes because they are less reliable, our results suggest that the actual choice to disclose versus recognize can also reduce information reliability. These results have implications for the interpretation of prior research on the reliability of recognized and disclosed numbers, for financial-accounting standard setters who may want to consider the reliability effects of their recognition versus disclosure decisions, and for auditing standard setters who may wish to clarify auditors' responsibilities for preventing misstatements in disclosed amounts.

recognition, disclosure, reliability, auditing, audit adjustments, materiality, stock options, leases

Abstract:
The purposes of the current study are to examine whether audit risk triggers prospective rationality cognition related to how decision aid reliance could be used as a defensive strategy in a court of law should legal action arise in the future, and assess the degree to which defensibility moderates the relationship between audit risk and decision aid reliance. This is a particularly relevant question in the Sarbanes-Oxley era, as decision aids hold the potential to improve audit quality; yet, immense legal and regulatory pressures on audit firms to improve audit quality could lead to a 'check list' mentality where auditors subordinate their audit judgments for the sake of compliance. Based on an experiment involving 118 audit practitioners, we find that auditors rely more on decision aid recommendations when either litigation risk (exogenous to the audit risk model) or internal control risk (endogenous to the audit risk model) is high relative to low. When litigation risk and internal control risk are simultaneously high, there is an interactive effect on decision aid reliance. Further analysis of the interaction suggests that the litigation risk amplifies cognition of defensibility related to internal control risk, which in turn moderates decision aid reliance. The experimental design purposefully incorporates a fairly unreasonable decision aid recommendation and, disturbingly, when both risks are high, the auditors appear to deferentially follow the aid's advice. Surprisingly, as decision aid reliance increases, decision confidence decreases. Post-experimental analyses reveal that fairly low reliance on decision aids in practice is mainly due to uncertainty surrounding the accuracy of decision aids and lack of refresher training on decision aid use.

decision aid reliance, litigation risk, internal control risk, audit risk

Abstract:
We investigate the value of graduate business education in learning tacit knowledge and achieving professional accounting success. Archival (n = 5,932) and survey (n = 2,941) data from managerial accountants employed at 2,525 North American companies in three industries (publishing, paper, and chemical) indicate that job performance evaluations (JPEs) of those who hold either a Masters of Accountancy (MAcc) or MBA degree are generally higher than non-master's (NM) degree accountants. We find some evidence that professionals with master's degrees, as compared to NM professionals, have higher levels of two forms of tacit managerial knowledge (TMK): self and others. The results also suggest that MAcc and MBA degrees contribute to success differentially throughout the professionals' careers. Specifically, a MAcc degree provides greater benefit than a MBA degree in the early and middle career years, while an MBA degree provides greater benefit than a MAcc degree in later career years. The results indicate that MAcc and MBA degrees contribute to success by increasing specific types of knowledge and enhancing ones' ability to learn.

Tacit knowledge, education, professional success, job performance

Abstract:
This study examines how the form of managements' earnings guidance (point, narrow range, wide range) affects analysts' earnings forecasts. Results from two experiments demonstrate that: (1) guidance form has no effect on analysts' forecasts made immediately after the guidance; and (2) after the actual earnings announcement, guidance form and the relationship of the earnings guidance to actual earnings (guidance error) interact in their effect on analysts' forecasts. After the actual earnings announcement, guidance error leads to higher (lower) analysts' forecasts for firms with downwardly (upwardly) biased guidance; this effect of guidance error is magnified by a narrow range and reduced by a wide range, compared to a point estimate. These results suggest that treating the mean of the range endpoints as equivalent to a point estimate and failing to consider effects after the release of actual earnings may paint an incomplete picture of how management guidance affects analysts and investors. It also offers useful information to managers who issue earnings guidance, and presents a challenge to the psychology literature regarding the effects of information precision on judgment and decision making.

preannouncements, earnings guidance, management forecasts, point estimate, range estimate, analyst forecasts

Abstract:
The objective of this study is to assess the extent to which auditor-provided systems reliability assurance affects potential service recipients' (1) likelihood of recommending that their company enter into a contractual agreement with the service provider and (2) comfort level with the reliability of the service provider's information systems. We conducted a full-factorial between-subjects experiment where the following four auditor assurances were either absent or present: availability, security, integrity, and maintainability. A total of 481 middle and upper level managers from a broad spectrum of functional areas participated in the study. Research findings indicate significant main effects with respect to all four assurances, as well as firm size, for the 'likelihood' variable. Significant main effects were also obtained for the 'comfort' variable with respect to availability, security, and maintainability (marginal significance), but integrity and firm size were non-significant. The amount of variance explained by the 'availability' and 'security' assurances (combined) was remarkably large (56% for 'likelihood' and 43% for 'comfort') relative to the combined variance explained by the other two assurances (1% for 'likelihood' and 1% for 'comfort'). We also found evidence that respondents overweighed assurance reports on individual principles, as compared to a four-principle reliability report. Additionally, we found no significant difference in dependent variable responses when all four assurances were provided and the auditor's report focused on either the (1) effectiveness of controls or (2) reliability of the system. Research evidence offers key strategic guidance to the AICPA, CICA, and CPA/CA firms engaged in systems reliability assurance services.

Assurance Services, Systems Reliability, SysTrust

Abstract:
The twofold purpose of this paper is to offer recommendations to accounting educators regarding educational technology (ET) delivery modes, and to stimulate accounting education research efforts in the area of ET. Drawing from behavioral and cognitive theory, as well as educational research on the impact of technology on learning, this paper reports and discusses the current state of research in ET. Next, ET research and accounting technology research are reviewed and classified into five types: (1) evaluation research, (2) media-comparison studies, (3) intra-medium studies, (4) aptitude-treatment interaction studies, and (5) alternative research designs. We provide practical guidelines to accounting educators and theory-based suggestions to accounting education researchers with regard to ET and its potential impact on student learning. Finally, we offer some directions for future accounting ET research.

Abstract:
In this paper, we explore the relationship among rank, knowledge, ability, experience, and success in managerial accounting practice. More specifically, we investigate the predictive validity of the Libby & Luft (L&L) model (1993) of the determinants of judgment performance. We implement and test the L & L model using structural equations applied to the performance evaluations of 2,941 practicing managerial accountants. Our results indicate rank-based differences in the determinants of success of staff-level versus senior and manager-level accountants. Specifically, technical managerial accounting knowledge, ability, and experience predict success for junior managerial accountants; industry knowledge, tacit managerial knowledge (TMK) and experience predict success for seniors; while, industry and TMK predict success for managers. The results generally support the validity of the L& L model in predicting the success of practicing managerial accountants.

Abstract:
Are there rank-based differences in the measured ability, and technical, industry, and tacit managerial knowledge of practicing managerial accountants? To explore this question, we measured the ability and knowledge of 2,941 practicing managerial accountants in three industries. Our results indicate that higher-ranking managerial accountants have: (1) higher levels of industry and tacit managerial knowledge, (2) lower levels of entry-level technical knowledge, and (3) no differences in ability, compared with lower ranking managerial accountants. Our research provides insights into the knowledge "stocks" in, and learning processes of, managerial accounting practice.

Abstract:
In 1994, the AICPA?s Special Committee on Financial Reporting recommended that participants in business reporting can improve the reporting process by focusing on user needs and finding cost-effective ways of aligning business reports with those needs. The Committee noted that professional financial analysts are among the most important users of business reporting and that an examination of their accounting information needs would provide useful insight to the profession. Further, the Committee suggested that an investigation of the link between information usage and decision quality could provide a starting point for determining whether currently reported business information is relevant. The current study examines the relation between the forecast accuracy of financial analysts and specific accounting information items used during financial statement analysis. Findings indicate that relatively more accurate analysts tend to emphasize different information items prior to issuing an earnings forecast than do less accurate analysts. Study results also provide evidence of an association between specific accounting information items and decision quality.

Abstract:
Using archival and survey data on 2,941 practicing managerial accountants, we explore four questions related to the determinants of success in managerial accounting: (1) Are there differences in knowledge content and ability among managerial accountants at different ranks? (2) Are there differences in the variability of knowledge content and ability among managerial accountants at different ranks? (3) Are the determinants of success in managerial accounting consistent with the Libby & Luft (L&L) model? and (4) Are differing types of knowledge and levels of ability needed for success at different ranks in managerial accounting? We find: (1) higher levels of technical knowledge among juniors and higher levels of industry and tacit managerial knowledge (TMK) among managers, (2) lower variability in the technical knowledge, and higher variability in the industry knowledge, of juniors compared with seniors and managers, (3) general (though not unequivocal) support for the determinants of success identified in the L& L model, and, (4) that technical accounting knowledge predicts job performance evaluations for juniors while industry and tacit managerial knowledge (TMK) predict job performance evaluations for seniors and managers.

Our study is among the first large-sample field-based studies to link actual accounting job performance with measures of professional accountants' knowledge and ability. Our contributions include: (1) for the first time, measuring and assessing the job performance effects of ability, technical knowledge, industry knowledge, and the sub-components of tacit managerial knowledge among managerial accountants, and (2) examining the variability in ability and knowledge of managerial accountants across organizational levels.

Abstract:
Prior research indicates that analysts' forecasts of earnings tend to be optimistic. Analysts' optimism may be attributed to experience, cognitive information search strategies, motivational incentives, or some combination thereof. In this study we conduct an experiment that uses a computerized eye-movement retinal imaging system to capture the cognitive search strategy of 60 professional financial analysts. We find that, within the experiment, more accurate analysts employ a directive information search strategy whereas less accurate analysts employ a sequential search strategy. Experimental results also indicate that motivational incentives intensify the analysts' tendency to provide optimistic earnings forecasts. We also conduct an examination of the analysts' predictive accuracy outside the experimental setting. We find a significant relation between historical accuracy and the analysts' cognitive search strategy observed in the experiment. Post-experiment survey results provide insight into the linkage between specific accounting information used by the analysts and the accuracy of their forecasts.

Abstract:
This research incorporates the theoretical framework of procedural justice into the user participation paradigm to further identify and clarify salient psychological factors influencing the relationship between participation and specific outcomes. In this experiment, 216 student subjects took part in improving accounting software. Subjects were promised 3 increasing levels of participation crossed with 2 levels of participation expectations (i.e., expected and actual participation were congruent or expected exceeded actual participation). When expected and actual participation were congruent, higher participation levels resulted in correspondingly increased user attitudes (procedural justice, control, satisfaction, and task commitment) and performance. Conversely, when expected exceeded actual participation, increased participation led to decreased user attitudes and performance. Results show that user participation can be either functional or dysfunctional. The strong attitudinal and behavioral findings of this study compliment and extend prior procedural justice research, and study results encourage the integration of procedural justice theory into AIS participation research.