Earnings management using estimates and the timing of adoption of accounting standards: An empirical examination of pensions

This study investigates the relationship between adoption timing of Statement of Financial Accounting Standards 87 and earnings management after adoption. Earnings management, defined consistent with Schipper (1989), is tested through hypotheses using (1) a portfolio approach and (2) pension rates. One Hypothesis uses a Modified Jones (1991) Model as a proxy for discretionary accruals and the other uses pension rate estimates.^ Statistically significant relationships are found between adoption timing and (1) discretionary accruals and (2) estimated rate-of-return (ROR) on pension plan assets. Early adopting firms tend to have lower discretionary accruals after adoption than on-time adopters. They also tend to use higher ROR estimates which are not supported by higher actual returns. Thus, while early adopters may be using ROR to manage income, this tends to not result in higher discretionary accruals. ^

An examination of accounting and auditing issues related to strategic environmental initiatives

Although corporate environmental accountability is receiving unprecedented attention in the United States from policy makers, the capital market, and the public at large, extant research is limited in its examination of the implications of strategic corporate environmental initiatives on accounting and auditing. The purpose of my dissertation is to address these implications by examining the association between firm environmental initiatives and audit fees, capital expenditures, and earnings quality using multivariate regression analysis. I find that firms engaged in more strategic environmental initiatives tend to have significantly higher audit fees and capital expenditures, and significantly lower levels of earnings manipulation measured using discretionary accruals. These results support the notion that auditors do recognize the importance of environmental initiatives when conducting the year-end financial statement audit, an idea that positively reflects upon the auditor’s monitoring role. The results also demonstrate the increased amount of capital resources required to participate in strategic environmental initiatives, an anecdotal notion that had yet to be empirically supported. This empirical support provides valuable insights on how environmental initiatives materially impact corporate financial statements. Finally, my results extend the extant literature by demonstrating that the superior financial performance reported by environmentally active firms is less likely driven by earnings manipulation by management, and by implication, more likely a result of real economic gains. Taken together, my dissertation establishes a strong and timely foundation for current and future research to explore corporate environmental initiatives in the United States and globally, a topic increasingly gaining momentum in today’s more eco-conscious world.^

Controllers' Perceptions of the Importance of Accounting Skills to Lodging Managers

Are managerial accounting skills important to all managers? Which of the common managerial accounting skills are the most important to the non- accounting manager? The authors report on their descriptive research gathered from controllers in the hospitality industry which provides guide- lines for managers in these areas.

The effect of mastery learning on a course in accounting information system (AIS): A comparison within public and private universities in Taiwan

The Accounting Information System (AIS) is an important course in the Department of Accounting (DoAc) of universities in Taiwan. This course is required for seniors not only because it meets the needs of the profession, but also because it provides continual study for the department's students.^ The scores of The National College and University Joint Entrance Examination (NUEE) show that students with high learning ability are admitted to public universities with high scores, while those with low learning ability are admitted only to private universities. The same situation has been found by the researcher while teaching an AIS course in DoAc of The Public Chun Shin University (CSU) and The Private Chinese Culture University (CCU).^ The purpose of this study was to determine whether low ability students enrolled in private universities in Taiwan in a mastery learning program could attain the same level as high ability students from public universities enrolled in a traditional program. An experimental design was used. The mastery learning method was used to teach three groups of seniors with low learning ability studying in the DoAc at CCU. The traditional method was used to teach the control group which consisted of senior students of DoAc of CSU with high learning ability. As a part of the mastery learning strategy, a formative test, quizzes, and homework were completed by the experimental group only, while the mid-term examination was completed by both groups as part of the course. The dependent variable was the summative test, the final examination. It was completed by both groups upon the course's completion.^ As predicted, there were significant differences between the two groups' results on the pretest. There were no significant differences between the two groups' results on the posttest. These findings support the hypothesis of the study and reveal the effectiveness of mastery learning strategies with low learning ability students. ^

A comprehensive study of bankruptcy prediction: Accounting ratios, market variables, and microstructure

Bankruptcy prediction has been a fruitful area of research. Univariate analysis and discriminant analysis were the first methodologies used. While they perform relatively well at correctly classifying bankrupt and nonbankrupt firms, their predictive ability has come into question over time. Univariate analysis lacks the big picture that financial distress entails. Multivariate discriminant analysis requires stringent assumptions that are violated when dealing with accounting ratios and market variables. This has led to the use of more complex models such as neural networks. While the accuracy of the predictions has improved with the use of more technical models, there is still an important point missing. Accounting ratios are the usual discriminating variables used in bankruptcy prediction. However, accounting ratios are backward-looking variables. At best, they are a current snapshot of the firm. Market variables are forward-looking variables. They are determined by discounting future outcomes. Microstructure variables, such as the bid-ask spread, also contain important information. Insiders are privy to more information that the retail investor, so if any financial distress is looming, the insiders should know before the general public. Therefore, any model in bankruptcy prediction should include market and microstructure variables. That is the focus of this dissertation. The traditional models and the newer, more technical models were tested and compared to the previous literature by employing accounting ratios, market variables, and microstructure variables. Our findings suggest that the more technical models are preferable, and that a mix of accounting and market variables are best at correctly classifying and predicting bankrupt firms. Multi-layer perceptron appears to be the most accurate model following the results. The set of best discriminating variables includes price, standard deviation of price, the bid-ask spread, net income to sale, working capital to total assets, and current liabilities to total assets.

Determinants of confidence and their effect on epistemic judgments: Implications for auditor calibration bias

Auditor decisions regarding the causes of accounting misstatements can have an audit effectiveness and efficiency. Specifically, overconfidence in one's decision can lead to an ineffective audit, whereas underconfidence in one's decision can lead to an inefficient audit. This dissertation explored the implications of providing various types of information cues to decision-makers regarding an Analytical Procedure task and investigated the relationship between different types of evidence cues (confirming, disconfirming, redundant or non-redundant) and the reduction in calibration bias. Information was collected using a laboratory experiment, from 45 accounting students participants. Research questions were analyzed using a 2 x 2 x 2 between-subject and within-subject analysis of covariance (ANCOVA). ^ Results indicated that presenting subjects with information cues dissimilar to the choice they made is an effective intervention in reducing the common overconfidence found in decision-making. In addition, other information characteristics, specifically non-redundant information can help in reducing a decision-maker's overconfidence/calibration bias for difficulty (compared to easy) decision-tasks. ^

Comparative analysis of a moderating and mediating model of stress, appraisal, and coping in Hispanic and non-Hispanic Alzheimer's disease caregivers

This dissertation utilizes a cross-sectional study to examine the phenomenon of caregiving within a theoretically grounded stress, appraisal, and coping model. Hispanic and non-Hispanic caregivers were studied to examine the factors associated with variance in caregiver appraisal, coping, and outcomes of caregiving strain (depression and somatic complaints) and caregiving gain (life satisfaction, mastery, and personal gain). A purposive sampling strategy was used to recruit 204 Alzheimer's disease caregivers in South Florida. A self-report questionnaire was used to collect demographic data, and to measure stress, appraisal, coping, and psychological well-being of caregivers. Regression equations were developed to compare moderating and mediating models of appraisal and coping. Emotion-focused coping skills were found to significantly moderate the effects of stress (F [1,195] = 4.62, p < .05), explaining approximately 21% of the variance in satisfaction was found to moderate the effects of stress (F [1,195] = 7.09; p < .05), explaining approximately 27% of the variance in personal gain and approximately 8% of the variance in life satisfaction (F [1,195] = 4.14; p < .05). Appraisal of Burden was found to significantly mediate the effects of stress, explaining approximately 30% of the variance in somatic complaints (F [1,196] = 31.60; p < .001) and 32% of the variance in depression (F [1,196] = 38.18; p < .001). The results of the analyses indicate that appraisal and coping skills are important variables in the stress process. The results of this study underscore the importance of accounting for positive and negative outcomes in providing a fuller understanding of the stress, appraisal and coping process of Alzheimer's Disease caregivers. ^

Analysis and comparison of the moral development of students required to graduate with an ethics course

Accounting students become practitioners facing ethical decision-making challenges that can be subject to various interpretations; hence, the profession is concerned with the appropriateness of their decisions. Moral development of these students has implications for a profession under legal challenges, negative publicity, and government scrutiny. Accounting students' moral development has been studied by examining their responses to moral questions in Rest's Defining Issues Test (DIT), their professional attitudes on Hall's Professionalism Scale Dimensions, and their ethical orientation-based professional commitment and ethical sensitivity. This study extended research in accounting ethics and moral development by examining students in a college where an ethics course is a requirement for graduation. ^ Knowledge of differences in the moral development of accounting students may alert practitioners and educators to potential problems resulting from a lack of ethical understanding as measured by moral development levels. If student moral development levels differ by major, and accounting majors have lower levels than other students, the conclusion may be that this difference is a causative factor for the alleged acts of malfeasance in the profession that may result in malpractice suits. ^ The current study compared 205 accounting, business, and nonbusiness students from a private university. In addition to academic major and completion of an ethics course, the other independent variable was academic level. Gender and age were tested as control variables and Rest's DIT score was the dependent variable. The primary analysis was a 2 x 3 x 3 ANOVA with post hoc tests for results with significant p-value of less than 0.05. ^ The results of this study reveal that students who take an ethics course appear to have a higher level of moral development (p = 0.013), as measured by the (DIT), than students at the same academic level who have not taken an ethics course. In addition, a statistically significant difference (p = 0.034) exists between freshmen who took an ethics class and juniors who did not take an ethics class. For every analysis except one, the lower class year with an ethics class had a higher level of moral development than the higher class year without an ethics class. These results appear to show that ethics education in particular has a greater effect on the level of moral development than education in general. Findings based on the gender specific analyses appear to show that males and females respond differently to the effects of taking an ethics class. The male students do not appear to increase their moral development level after taking an ethics course (p = 0.693) but male levels of moral development differ significantly (p = 0.003) by major. Female levels of moral development appear to increase after taking an ethics course (p = 0.002). However, they do not differ according to major (p = 0.097). ^ These findings indicate that accounting students should be required to have a class in ethics as part of their college curriculum. Students with an ethics class have a significantly higher level of moral development. The challenges facing the profession at the current time indicate that public confidence in the reports of client corporations has eroded and one way to restore this confidence could be to require ethics training of future accountants. ^

Lake metabolism and the diel oxygen technique: State of the science

Significant improvements have been made in estimating gross primary production (GPP), ecosystem respiration (R), and net ecosystem production (NEP) from diel, “free-water” changes in dissolved oxygen (DO). Here we evaluate some of the assumptions and uncertainties that are still embedded in the technique and provide guidelines on how to estimate reliable metabolic rates from high-frequency sonde data. True whole-system estimates are often not obtained because measurements reflect an unknown zone of influence which varies over space and time. A minimum logging frequency of 30 min was sufficient to capture metabolism at the daily time scale. Higher sampling frequencies capture additional pattern in the DO data, primarily related to physical mixing. Causes behind the often large daily variability are discussed and evaluated for an oligotrophic and a eutrophic lake. Despite a 3-fold higher day-to-day variability in absolute GPP rates in the eutrophic lake, both lakes required at least 3 sonde days per week for GPP estimates to be within 20% of the weekly average. A sensitivity analysis evaluated uncertainties associated with DO measurements, piston velocity (k), and the assumption that daytime R equals nighttime R. In low productivity lakes, uncertainty in DO measurements and piston velocity strongly impacts R but has no effect on GPP or NEP. Lack of accounting for higher R during the day underestimates R and GPP but has no effect on NEP. We finally provide suggestions for future research to improve the technique.

Analysis and comparison of the moral development of students required to graduate with an ethics course

Accounting students become practitioners facing ethical decision-making challenges that can be subject to various interpretations; hence, the profession is concerned with the appropriateness of their decisions. Moral development of these students has implications for a profession under legal challenges, negative publicity, and government scrutiny. Accounting students moral development has been studied by examining their responses to moral questions in Rest's Defining Issues Test (DIT), their professional attitudes on Hall's Professionalism Scale Dimensions, and their ethical orientation-based professional commitment and ethical sensitivity. This study extended research in accounting ethics and moral development by examining students in a college where an ethics course is a requirement for graduation. Knowledge of differences in the moral development of accounting students may alert practitioners and educators to potential problems resulting from a lack of ethical understanding as measured by moral development levels. If student moral development levels differ by major, and accounting majors have lower levels than other students, the conclusion may be that this difference is a causative factor for the alleged acts of malfeasance in the profession that may result in malpractice suits. The current study compared 205 accounting, business, and nonbusiness students from a private university. In addition to academic major and completion of an ethics course, the other independent variable was academic level. Gender and age were tested as control variables and Rest's DIT score was the dependent variable. The primary analysis was a 2x3x3 ANOVA with post hoc tests for results with significant p-value of less than 0.05. The results of this study reveal that students who take an ethics course appear to have a higher level of moral development (p=0.013), as measured by the (DIT), than students at the same academic level who have not taken an ethics course. In addition, a statistically significant difference (p=0.034) exists between freshmen who took an ethics class and juniors who did not take an ethics class. For every analysis except one, the lower class year with an ethics class had a higher level of moral development than the higher class year without an ethics class. These results appear to show that ethics education in particular has a greater effect on the level of moral development than education in general. Findings based on the gender specific analyses appear to show that males and females respond differently to the effects of taking an ethics class. The male students do not appear to increase their moral development level after taking an ethics course (p=0.693) but male levels of moral development differ significantly (p=0.003) by major. Female levels of moral development appear to increase after taking an ethics course (p=0.002). However, they do not differ according to major (p=0.0 97). These findings indicate that accounting students should be required to have a class in ethics as part of their college curriculum. Students with an ethics class have a significantly higher level of moral development. The challenges facing the profession at the current time indicate that public confidence in the reports of client corporations has eroded and one way to restore this confidence could be to require ethics training of future accountants.

Internal control reporting by non-accelerated filers

I examine three issues related to internal control reporting by non-accelerated filers. Motivation for the three studies comes from the fact that Section 404 of the Sarbanes-Oxley Act (SOX) continues to be controversial, as evidenced by the permanent exemption from Section 404(b) of SOX granted to non-accelerated filers by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Dodd-Frank Act also requires the SEC to study compliance costs associated with smaller accelerated filers. In the first part of my dissertation, I document that the audit fee premium for non-accelerated filers disclosing a material weakness in internal controls (a) is significantly lower than the corresponding premium for accelerated filers, and (b) declines significantly over time. I also find that in the case of accelerated filers remediating clients pay lower fees compared to clients continuing to report internal control problems; however, such differences are not observed in the case of non-accelerated filers. The second essay focuses on audit report lag. The results indicate that presence of material weaknesses are associated with increased audit report lags, for both accelerated and non-accelerated filers. The results also indicate that the decline in report lag following remediation of problems is greater for accelerated filers than for non-accelerated filers. The third essay examines early warnings (pursuant to Section 302 disclosures) for firms that subsequently disclosed internal control problems in their 404 reports. The analyses indicate that non-accelerated firms with shorter CFO tenure, presence of accounting experts on the audit committee, and more frequent audit committee meetings are more likely to provide prior Section 302 warnings. Overall the results suggest that there are differences in internal control reporting between the accelerated and non-accelerated filers. The results provide empirical grounding for the ongoing debate about internal control reporting by non-accelerated filers.

Essays on audit report lag

Audit reporting lag continues to remain an issue of significant interest to regulators, financial statement users, public companies, and auditors. The SEC has recently acted to reduce the deadline for filing annual and quarterly financial statements. Such focus on audit reporting lag arises because, as noted by the Financial Accounting Standards Board, relevance and reliability are the two primary qualities of accounting information; and, to be relevant, information has to be timely. In my dissertation, I examine three issues related to the audit report lag. The first essay focuses on the association between audit report lag and the meeting or beating of earnings benchmarks. I do not find any association between audit report lag and just meeting or beating earnings benchmarks. However, I find that longer audit report lag is negatively associated with the probability of using discretionary accruals to meet or beat earnings benchmarks. We can infer from these results that audit effort, for which audit report lag is a proxy, reduces earnings management. The second part of my dissertation examines the association between types of auditor changes and audit report lag. I find that the resignation of an auditor is associated longer audit report lag compared to the dismissal of an auditor. I also find a significant positive association between the disclosure of a reportable event and audit report lag. The third part of my dissertation investigates the association between senior executive changes and audit report lag. I find that audit report lag is longer when client firms have a new CEO or CFO. Further, I find that audit report lag is longer when the new executive is someone from outside the firm. These results provide empirical evidence about the importance of senior management in the financial reporting process.