• Selected
• Entire List

Abstract:
This paper constructs a model of professional expertise as an attribute of an accounting firm rather than just an attribute of individual experts. This model leads to the identification of three strategies applicable to accounting firms. A Knowledge firm develops and sells proprietary knowledge to a selective clientele, whereas a Full Service firm develops and sells general professional knowledge to a broad clientele. A Relationship firm is in-between the other two firm types. Associations are hypothesized between these strategies and a variety of firm activities such as client selection, diffusion (or concentration) of expertise within the firm, sharing of expertise within the firm, and formalization of quality control processes. A questionnaire was completed by 219 audit and tax partners and consulting, insolvency and forensic accounting principals in 15 public accounting firms, including the Big Five. Results are consistent with the existence of three distinct types of firms. Results also indicate that partners are aware of local pressures that they personally face (e.g,. need to sell more services to clients) and less aware of the effect of broad structural features of the firm (e.g., size, decision aids). The key structural features that are salient to partners involve need for selectivity in choosing clients, and the need for the firm to develop specialized proprietary technical knowledge.

Firm level expertise; Expertise management; Proprietary knowledge; Client selection; Audit firm structure; Knowledge management

Abstract:
We develop a model of auditor-client accounting negotiation, using the elements of negotiation examined in the behavioral negotiation literature, elaborated to include accounting contextual features indicated in the accounting literature and suggested by interviews with senior practitioners. We use a questionnaire structured according to the model to describe the elements, contextual features and associations between the two groups in a sample of real negotiations chosen by 93 experienced audit partners. The paper demonstrates important aspects of the sampled accounting negotiations and makes suggestions for further empirical and model development research.

Auditor-client; Negotiation; Financial reporting; Accounting choice

Abstract:
We develop a model of auditor-client accounting negotiation, using the elements of negotiation examined in the behavioral negotiation literature, elaborated to include accounting contextual features indicated in the accounting literature and suggested by interviews with senior practitioners. We use a questionnaire structured according to the model to describe the elements, contextual features and associations between the two groups in a sample of real negotiations chosen by 93 experienced audit partners. The paper demonstrates important aspects of the sampled accounting negotiations and makes suggestions for further empirical and model development research.

Auditor-client; Negotiation; Financial reporting; Accounting choice

Abstract:
This paper presents a comprehensive field based analysis of how working paper review is conducted. It supplements the mostly experimental research on working paper review by reporting the results of a retrospective field questionnaire which asked audit managers to report on their behavior and their relationships with preparers and partners on actual audit engagements. The extent of review was sensitive to specific features of the client and the file, including risk factors, to features of the preparer and particularly to the style of the reviewer, which was quite stable across cases. While the evidence of manager awareness of preparer stylization was weak, the evidence of stylization for the partners was pervasive, affecting both work done and documentation. Other new descriptive evidence on the nature of the review process is provided including the purpose of the review process, how frequently surprises are found in the review process and what are the qualities of good reviewers as compared to poor reviewers.

Audit review; Interpersonal persuasion; Quality control; Field studies in auditing

Abstract:
Much attention is beginning to be paid to auditor client management negotiation as a result of recent events in the financial world. Gibbins, Salterio and Webb [GSW 2001] developed an accounting specific negotiation model and gathered collaborative data from audit partners. To lay the basis for further understanding of the dynamics of the negotiation process, our research examines the views of chief financial officers (CFOs) and compares and contrasts those views with GSW's auditors. The results (1) provide additional evidence of the model's generalizability; (2) advance evidence of congruencies and divergences in the recalled negotiations; and (3) allow for model modification and elaboration in light of having the views of both parties. We show a high level of congruency in the two groups in the recall of the issue type, the people and the elements involved in the negotiation process, as well as the relative importance of various accounting contextual features. We also identify some elements and features that may cause auditor client management negotiations to be mainly distributive (win-lose) both in bargaining and in outcomes. The new CFO data and comparisons to the auditor data suggest two principal model revisions: a reduction in the large number of contextual features into a parsimonious set of the most important features; and advice to users of the negotiation model to be sensitive to differences in the parties' interpretations of the model's elements and features.

Audit negotiation, Chief Financial Officers, Model corroboration

Abstract:
The auditor's initial negotiation strategy and tactics choice determines how the upcoming negotiation is approached, carried out and potentially the eventual outcome. We experimentally examine two factors key to the auditor's initial formulation of his/her negotiation strategy: the nature of the auditor-client management relationship and the auditor's initial assessment of client management's flexibility in its accounting position. We posit that these two factors will condition the auditor's approach to the upcoming negotiation based on the negotiation literature. Our experimental results, obtained from 140 audit partners, indicate that initial client management accounting position inflexibility leads to auditors being more likely to use contending tactics and to be much firmer in their commitment to achieve the negotiation goal of a substantial reduction in income. Experimentally, we found only limited marginally significant effects for nature of the relationship. We also carried out hypotheses tests employing a structural equations model which allows for greater latitude in individual interpretation of the features manipulated. This model confirmed our main experimental results in addition to revealing subtleties that our experiment did not document. In particular, the more positive and cordial the auditor client relationship, the less committed the auditor is to the negotiation goal of a substantial reduction in income and the greater the likelihood the auditor will employ concessionary or compromising tactics. Also, we find the first evidence documented in the accounting negotiation research that auditors consider an integrative strategy, expanding the agenda of issues, when faced with an inflexible initial client accounting position. Our results have mixed implications for auditors. The experimental results show the auditors reacting appropriately to an inflexible client management initial accounting position, although not considering as wide a range of strategies as they might. Furthermore, the marginally significant experimental results for effects of client relationship nature on auditor judgments seem to be appropriate as relationship quality should not affect audit evidence evaluation and accounting policy judgment. However, the structural equations model's more fine-grained results indicate auditors respond to the nature of the relationship. The model shows that a more positive and cordial relationship leads auditors to select concessionary and compromising tactics along with a lower commitment to the negotiation goal of a substantial reduction in client net income, leading to the potential for more aggressive (income increasing) accounting being reported in financial statements.

negotiation, audit, relationship, dispute

Abstract:
This paper contributes to the growing literature on the auditor-client management negotiation process by focusing on the dyadic relationship. Our audit partner-CFO dyads describe the process of resolving issues related to financial reporting using a combination of open ended and semi-structured questions. Our qualitative and quantitative analysis of the interviews suggests that relationships can be characterized as either proactive or reactive and nested within these relationships some are described as good and some as poor. From our analysis, it appears that the CFO determines implicitly, and sometimes explicitly, the type of relationship they want with their auditor (i.e. proactive or reactive). However, it also appears that the audit partner is responsible for relationship quality (i.e. good or poor). But if the relationship is not in a good state or there is a mismatch between the CFO and audit partner personalities, the audit partner will most likely be switched either by the audit firm or the CFO. Further, our informants described a negotiation process that is not linear, but rather one that can iterate backwards, skip forward and return to redefine the basic issue. We label this aspect of negotiation as fluidity. Finally, two major types of issues were discussed (i.e. regulatory type issues or transaction-based issues) with the type of issue influencing many aspects of the resolution process. Overall, this qualitative research substantially increases our understanding of the nature of the CFO-audit partner dyadic relationship and improves our understanding of the components of prior models of auditor-client management negotiation.

Negotiation, Chief Financial Officer, Auditor, Accounting

Abstract:
In recent years public accounting firms have been caught in a media firestorm fuelled by corporate fraud, disappointed investors and aggressive regulators. The collapse of Arthur Andersen, attributed partly to the way the firm was managed, including incentives for partner performance, and stories of cozy auditor-client relations involving numerous firms, have triggered questions about how well accounting firms are managed. Some former Arthur Andersen partners (e.g., Wyatt 2004; Toffler 2003) have proposed that greed and mismanagement by senior partners contributed to the demise of Arthur Andersen. Much of the trouble happened in the US - what about Canada? Have the management practices of Canadian public accounting firms changed after all this?

Abstract:
This paper focuses on the increasingly important area of corporate reporting beyond the audited GAAP financial statements and notes. Framed by comments received from Chief Financial Officers (CFOs) and by issues raised in the research literature, the paper investigates the literature and draws conclusions about the value of such reporting and about numerous practical and conceptual issues deserving additional research. Our analysis demonstrates that reporting beyond the GAAP statements is a central part of corporate disclosure and resulting valuation, and is central to the CFO's function, but is currently under-researched. Other prominent issues addressed in this paper include the role of disclosure regulation in influencing useful disclosure, calculating and managing the costs of disclosure, overcoming weaknesses in GAAP, determining what disclosures institutional and other investors need and use, managing relations with analysts, and reducing undesired effects of external disclosure on internal management. Our various extrapolations from limited research support the analysis and also represent research opportunities. The analysis and conclusions consider the perspectives of CFOs, information users, regulators and researchers. Among more than 30 conclusions are that reporting beyond GAAP has incremental value to GAAP, partly derived from its relationship with GAAP; that any increased regulation of beyond-GAAP reporting should focus on disclosure and reconciliation to GAAP rather than on content details in order to preserve reporting of useful firm-specific information; and that though the costs of beyond-GAAP reporting have not been studied, it is cost-effective and likely more so than GAAP reporting. Our intent throughout is to provide useful insights and generate increased interest among CFOs, users and regulators to encourage further research and among researchers to conduct it.

Beyond-GAAP reporting, Disclosure, Regulation

Abstract:
Auditor-client negotiation about difficult client accounting issues involves both the auditor and the client. On the client side, the Chief Financial Officer (CFO) plays a central role in the financial reporting process, yet is rarely the focus of academic study. This paper reports how a sample of Canadian CFOs viewed the negotiation process and context, using an experiential questionnaire to build on the negotiation model developed and demonstrated for the auditor side of the negotiation by Gibbins, Salterio, and Webb 2001, and corroborated by a comparison of common questionnaire items across auditor and CFO samples by Gibbins, McCracken, and Salterio 2005.

The CFOs saw negotiation with the auditors as a consequence of change in accounting and disclosure standards or personnel influential to their financial reporting, or business changes, such as, new business deals or acquisitions. Negotiation was thrust upon the CFO, and the CFO then had to manage it. The CFOs informed other management (such as the CEO) and was aware of their interests, but did not generally seek their help. Informing the Board or the audit committee of the issue was much less frequent. The issue being negotiated was seen as complex, requiring research and analysis, and dependent on knowledge and expertise, with the result more likely reflecting form over substance (a result some CFOs suggested was more agreeable to the auditor than to the CFO).

Negotiation, Chief Financial Officer, Accounting, Auditor

Abstract:
This paper presents an interpersonal model of audit file review centered on the audit manager. A manager's conduct of the review is impacted by four other components: a manager's expectations about the client, expectations about the preparer, expectations about the partner and the manager's own approach and circumstances. The paper then presents a comprehensive field based analysis of how working paper review is conducted. It supplements the mostly experimental research on working paper review by reporting the results of a retrospective field questionnaire which asked audit managers to report on their behavior and their relationships with preparers and partners on actual audit engagements. The extent of review was sensitive to specific features of the client and the file, (including risk factors) to features of the preparer and particularly to the style of the reviewer, which was quite stable across cases.

While the evidence of managers' awareness of preparers' "stylizing" the file to suit the manager was weak, the evidence of managers' stylizing for the partners was pervasive, affecting both work done and documentation. Reviewers tended to have a stable review style across reviews. Managers believed that good reviews emphasized key issues and risks rather than detail. Other new descriptive evidence on the nature of the review process is provided including the purpose of the review process, how frequently surprises are found in the review process and what are the qualities of good reviewers as compared to poor reviewers. The implications of our model and our results for future research are outlined.

audit review, interpersonal persuasion, quality control, field studies in auditing

Abstract:
This essay focuses on accounting expertise and what is happening to it as the millennium turns, drawing some speculative conclusions about developments we might expect in the near future. The positions taken are drawn from my research and teaching experiences. As this is an essay, citations are not made in the text but a bibliography is appended. Those sources gave me ideas, but they are not responsible for where I have taken the ideas!

My focus is on what the accountant actually does in the world: the accountant's task and its surrounding environment, both of which define and shape expertise. Research and common sense make it clear that expertise is task-defined. Experts are good at some domain of knowledge and behaviour, and to provide that expertise they have structured memory and reasoning systems that are adapted to tasks they have experienced. Experience is key, whether by direct contact with the task or through stories, cases or instruction provided by other people. The necessary memory and reasoning knowledge structures are partly cognitive, in the expert's mind, but also may be external, such as in books, routines, decision aids, databases and authoritative standards. The sort of expertise that develops is conditioned by the tasks, by any support or other structures that come with them, and by incentives for good or poor task performance.

Abstract:
This paper describes in outline the basis of a statistical theory of accounting measurement called 'Statistical Activity Cost Theory'. Some applications are explained through the use of computer simulation. The areas of application are: the statistical properties of the depreciation adjustment; a statistical interpretation of standard costing variables; market values and goodwill as derived, probabilistic concepts; and the relationship of the theory to the fundamental economic forces of consumer preferences and supplier cost functions. The theory has considerable potential to improve understanding of the relationship between accounting numbers and underlying economics processes.