Discretionary income smoothing has been argued to increase bank opacity and degrade financial system stability by making banks more difficult to monitor. However, no direct empirical association between discretionary smoothing and opacity has been established to date. We argue that smoothing could reflect either the opportunistic exercise of discretion that disconnects loan loss provisions (LLPs) from changes in underlying credit quality, consistent with smoothing increasing opacity, or an informative exercise of discretion to communicate forward‐looking information about loan losses. We examine the association between discretionary smoothing and the informativeness of LLPs for a sample of banks from 1994 to 2019 and find that discretionary smoothing is, on average, associated with more informative LLPs. However, this association is nuanced, with cross‐sectional differences and changes over time. We find evidence that an intervention by the SEC into bank LLP practices in the late 1990s curbed opportunistic smoothing via provisioning for homogeneous loans. Subsequently, smoothing is associated with more informative provisions, including for banks with both more homogeneous and more heterogeneous loan portfolios. Our findings are inconsistent with the notion that smoothing may be associated with greater opacity.

We evaluate whether, and under what circumstances, corporate tax aggressiveness influences audit pricing. Using a compound measure of two long-run effective tax rates, we find that tax-aggressive firms pay higher fees for external audit services after controlling for factors related to earnings management. The fee premium increases with management’s uncertainty about the sustainability of tax positions if audited by tax authorities (i.e., disclosed tax reserves). Further, the provision of auditor-provided tax services may create knowledge spillovers that alleviate the fee premium for tax aggressiveness, unless tax uncertainty is high. Finally, an accounting firm’s industry expertise in auditing is associated with higher audit fees independent of tax aggressiveness, whereas industry expertise in taxation leads to a fee premium only for tax-aggressive clients. Overall, the evidence implies firms’ aggressive tax behavior, tax services provider, and auditor expertise interact to influence the pricing of audit engagements.

There is often evidence of confusion between two forms of the constant percentage learning curve model: the cumulative average and the individual unit forms. Failure to distinguish between the two models can lead to their misuse and to potentially serious errors of estimation. A precise statement of the difference between the two clarifies the errors of misspecification. This note provides an analytical comparsion of the two models and addresses empirical estimation issues. Résumé. On a souvent la preuve de la confusion entre deux formules de modèle de la courbe d'apprentissage à pourcentage constant: celle de la moyenne cumulative et celle de l'unité individuelle. Le fait de ne pas distinguer les deux modèles peut conduire à une mauvaise utilisation et éventuellement à de sérieuses erreurs d'estimation. Un examen précis de la différence entre les deux peut clarifier les erreurs de spécification. Cet article présente une comparaison analytique des deux modèles et traite des questions d'estimation empirique.

Bayesian theory predicts an increase in market participants' reliance on reported current earnings to revise their expectations of future earnings when the uncertainty in future earnings is higher. Prior studies focus on price reactions and find negative associations between measures of earnings uncertainty and investors' reliance on reported current earnings. This study examines analysts' forecast revisions (of future earnings) around the announcements of current period earnings and finds positive associations between measures of earnings uncertainty and analysts' reliance on reported current earnings. The findings suggest that uncertainty measures and discount rates are correlated, and cross-sectional differences in the discount rate taint the interpretation of price reactions as evidence of expectation revisions under uncertainty. This study sheds additional light on the complex relationships among earnings uncertainty measures, price reactions to earnings surprise, and cost of capital.

This article explores how accounting ideas travel to unfamiliar environments and instigate new modes of calculation therein. The empirical focus is on the food balance sheet, a key calculative technology in the realm of food security. Drawing on Said's four‐stage schema for analyzing the movement of theories and ideas, this investigation traces the journeying of the balance sheet to the field of food security from the First World War, culminating in the institutionalization of the food balance sheet as a standardized and universal practice from the late 1940s. The study reveals the conditions that facilitated acceptance of the balance sheet idea in a new field—specifically, its alignment to the problem of managing the national and global supply of food, as well as the presence of individual actants who recognized its utility for communicating and addressing the problem of food insecurity during periods of global conflict and humanitarian crisis. These key individuals emanated from the United States, the dominant power in an age of internationalism. It is shown that conceptual traveling involved the jettisoning of core elements of the accounting construction of the balance sheet, but also their selective reimportation once the balance sheet became domesticated in its new location. The article offers original insights to the forces that generate calculative innovations in epistemic communities beyond accounting.

We study how auditors prioritize tasks and how variations in task order influence auditors' performance. Drawing on conservation of resources theory, we develop and test our hypotheses through three experiments involving over 350 professional auditors. The first two experiments assess the impact of task order on performance. Across two settings, we manipulate task order and find that prioritizing an easier task generally results in lower performance compared with prioritizing a difficult task. In the third experiment, auditors are given autonomy over task ordering. We observe a tendency to prioritize easier tasks, particularly under heightened time pressure. We do not find any evidence that psychological ownership weakens the effect of time pressure on easy task prioritization.

We use the adoption of General Accounting Standards Board Statement No. 34 (GASB 34) to examine whether disclosing information in states' financial reports influences their investment decisions. GASB 34 requires governments to report on general infrastructure assets and permits either the standard depreciation approach or the modified approach. The modified approach requires additional disclosures, a step which we argue promotes greater transparency about a government's infrastructure and can potentially facilitate infrastructure investment decisions. We find a robust positive association between the modified approach and investment in infrastructure maintenance. Additional evidence demonstrates a more pronounced effect when external monitoring is likely higher and government officials are likely better informed as a result of the increased disclosure. We further find that states using the modified approach are less likely to cut or divert funds intended for infrastructure maintenance. Our study suggests that disclosing information in governments' financial reports can have real effects, such as mitigating underinvestment in infrastructure maintenance, which governments often defer to future periods in violation of the interperiod equity principle and to the detriment of society.

The management control information used in decision‐making comports with one of the two generally accepted roles—to monitor and evaluate employees to conform their behavior to achieving organizational goals (decision‐influencing role), or to reduce decision uncertainty (decision‐facilitating role). However, the ways in which these two roles may combine concurrently has received limited empirical attention. Thus, in this case study, archival data and evidence from 30 interviews with space sector experts are employed to evaluate how the two roles assumed by management control contributed—both individually and jointly—to the achievements of the National Aeronautics and Space Administration's Apollo program. The analysis leads to a proposed 2×2 matrix that better characterizes the roles that could be assumed by management control in decision settings. This study extends the management control literature by presenting an additionally nuanced picture of these roles, as well as the subsequent consequences that arise from their combinations. Its findings provide insight for management control development and application.

This study provides the first large‐sample evidence on the economic tax effects of special purpose entities (SPEs). These increasingly common organizational structures facilitate corporate tax savings by enabling sponsor firms to increase tax‐advantaged activities and/or enhance their tax efficiency (i.e., relative tax savings of a given activity). Using path analysis, we find that SPEs facilitate greater tax avoidance such that an economically large amount of cash tax savings from research and development (R&D), depreciable assets, net operating loss carryforwards, intangible assets, foreign operations, and tax havens occur in conjunction with SPE use. We estimate that SPEs help generate over $330 billion of incremental cash tax savings, or roughly 6 percent of total U.S. federal corporate income tax collections during the sample period. Interaction analyses reveal that SPEs enhance the tax efficiency of intangibles and R&D by 61.5 percent to 87.5 percent. Overall, these findings provide economic insight into complex organizational structures supporting corporate tax avoidance.