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Abstract:
Comprehensive regulatory changes brought on by recent corporate governance reforms have broadly redefined and re-emphasized the roles and responsibilities of all the participants in a public company's financial reporting process. Most notably, these reforms have intensified scrutiny of corporate audit committees, whose role as protectors of investors' interests now attracts substantially higher visibility and expectations. As a result, audit committees face the formidable challenge of effectively overseeing the company's financial reporting process in a dramatically changed - and highly charged - corporate governance environment. This paper discusses the new expectations of audit committee responsibilities and effectiveness in the wake of corporate governance reforms, key challenges, whistleblower provisions and shortcomings, and provides some directions for future research.

Audit committee effectiveness, Blue Ribbon Committee, corporate governance, Sarbanes-Oxley Act, whistleblower provisions

Abstract:
As information advisors, Certified Public Accountants (CPAs) can be viewed as information quality assurers who independently improve the relevance of information for decision-makers. Relevance improvement advice may depend on the advisor's background as well as the problem information content of the initial decision problem presentation. This study reports results of an experiment in which accountants with various levels of management accounting experience received materials with problem information content based on either historical net income or historical cash flow data. Results indicate that relative managerial accounting experience significantly increases experienced accountants' tendencies to incorporate decision-relevant opportunity cost information in their recommendations. Furthermore, problem information content significantly affects accountants' choice of method for analyzing information for a decision which, in turn, affects their selection of relevant information as the basis for their recommendations.

Abstract:
We examine the performance consequences of the fit between environmental factors surrounding publicly-listed firms in China's emerging economy, and the firms' use of, and emphasis on management accounting and control systems (MCS): formal planning and budget controls, participative budgeting and performance evaluation, strategic performance measures and rewards, and socialization practices. We use archival data and survey data collected from senior- and middle-level managers in 158 publicly-listed Chinese firms. We find robust and consistent evidence that more extensive use of MCS is associated with higher concurrent and lagged accounting (return on assets) and market (market return) performance, and lower market beta. More importantly, we find robust and consistent evidence for the alignment hypothesis that less - but not more - extensive use of MCS than predicted by the firms' market competition and growth opportunities adversely affects performance, both subjective-based (assessed by senior-level managers) and accounting- and market-based. Our results suggest that a misfit between the firms' environmental characteristics and their MCS practices hurts the firms' performance. We discuss the implications of our findings, and provide some directions for future research.

Management control systems, Strategic performance measures, Formal planning and budget control, Socialization, Growth opportunities, Accounting-based and market-based performance

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:
Open sharing of knowledge among employees is increasingly being viewed as a key intangible source of competitive advantage and corporate value. In similar fashion, it can help accounting firms to increase the effectiveness and integrity of the audit process. The aim of this study is to initiate development of a framework for understanding the factors that either increase or impede knowledge sharing in an audit. A set of causal factors and relationships is first inferred from the extant literatures in auditing, social psychology, and organizational behavior. Then a comprehensive field-based study of experienced auditors, comprising both interviews and a survey, is used to: (1) validate some of these inferences; (2) generate deeper insights into the roles of these factors; and (3) unearth yet other factors and relationships not evident from the literature. All three objectives are fulfilled, and the findings are integrated with inferences from the extant literature to yield a holistic framework.

Abstract:
Accountants tend to overlook relevant principles and causal relationships that are commonly taught in education and experienced in practice. This raises the question: Do accountants apply what they know? This study relies on analogical reasoning research to develop and test predictions about the tendency of accountants to omit key causal relationships in a challenging decision setting: recommending revenue-maximizing strategies to a client in the midst of a business-model change. In our experiment, we first elicit comparisons of various source problems from some of our participants (the comparison condition), but not from the others (the advice condition). Next, the participants assume the role of a business consultant and recommend ways to improve a client's revenue in a new setting. The new setting shares with the source problems either (1) a key causal relationship and several literal similarities (the literal similarity condition), or (2) a key causal relationship but no literal similarities (the relational similarity condition). We predict and find that comparison enhances the quality of accountants' recommendations when the source problems are literally similar to the new setting, and that depriving participants of literal similarities enhances the quality of recommendations when participants do not make comparisons. Our findings show that similarity and comparison help reduce the gap between knowing and applying accounting causal relationships in new settings. Additional tests confirm that the findings are not explained by whether a participant is equipped with the key accounting causal relationship. The study has implications for decision making in seemingly familiar but complex settings, such as revenue-enhancement or cost-containment decisions following business-model changes.

causal-knowledge representation, literal vs. relational similarity, comparison and advice, accounting causal relationships

Abstract:
This paper uses a laboratory experiment to investigate the joint influence of accounting knowledge and decision context on the tendency of decision makers to ignore opportunity costs in resource allocation decisions. In the experiment, accounting knowledge was measured in two ways: discretely and continuously. The discrete measure classified subjects into high- and low-accounting knowledge categories based upon the program of graduate business study in which the subjects were enrolled. The continuous measure was the number of accounting courses the subjects had completed. Decision context was a manipulated variable. Subjects were presented with a resource allocation decision in either a business or a personal context. The experimental design randomized context treatments and controlled for the potential effect of analytical ability on performance. The experiment produced the counter-intuitive result that high-accounting knowledge interferes with a decision maker's ability to incorporate opportunity costs into a business decision, but such knowledge does not interfere with a decision maker's ability to factor opportunity costs into a personal decision. In particular, the results indicate that the number of opportunity costs ignored by subjects in a business resource allocation decision is greater for subjects with high-accounting knowledge than for subjects with low-accounting knowledge. The experiment also indicates that subjects with high-accounting knowledge ignore a greater number of opportunity costs when the decision is posed in a business context than when it is posed in a personal context. Finally, ex-post analyses show that the experiment's findings are robust to differences in the subjects' maximization objective for the resource allocation task.