Knowledge that Transforms

Accepted by Steve Salterio. We gratefully acknowledge the helpful comments and suggestions of Steven Salterio (editor), two anonymous reviewers, Joan Luft, and Dave Ricchiute. We are also grateful to Joanna Ho, Kathryn Kadous, Khim Kelly, Bill Kinney, Ella Mae Matsumura, Lisa Sedor, participants at the 2005 Global Management Accounting Research Symposium, and participants at the 2004 Auditing Midyear Research Conference for their helpful comments on previous versions of this manuscript. The authors are indebted to the auditors who participated in the experiment, and to the Master of Science in Accountancy students who participated in the pilot study. Professor Vera-Muñoz acknowledges financial support by KPMG LLP through its Faculty Fellowship program.

This paper examines how adding leading non-financial value drivers to a lagging summary financial measure affects managerial decision making in firms where either intangible assets (intangible assets firm) or tangible assets (tangible assets firm) are more important for future financial performance. Using an experiment, I compare a control performance evaluation system (PES) with feedback and incentives on only a summary financial measure to a PES with added feedback on non-financial measures and a PES with added feedback and incentives on non-financial measures. I find that managers increase their decision quality more in the intangible assets firm than in the tangible assets firm when both feedback and incentives on non-financial measures are added, but not when only feedback on non-financial measures is added. Early in the experiment, managers of the intangible assets firm do not make better decisions with the adding of only feedback on non-financial measures, but do so with the further adding of incentives on non-financial measures. However, managers of the intangible assets firm improve their decisions over time with the adding of only feedback on non-financial measures. On the other hand, managers of the tangible assets firm do not make better decisions with the adding of only feedback on non-financial measures nor with the further adding of incentives on non-financial measures. The results suggest that the benefits of adding non-financial value drivers may vary based on a firm's dependency on tangible versus intangible assets, and on whether the non-financial value drivers are explicitly rewarded in the incentive contract.

This study investigates the effects of computer assurance specialist (CAS) competence and auditor accounting information system (AIS) expertise on auditor