Knowledge that Transforms

In this study, we examine auditors' reliance on artificial intelligence (AI) systems that are designed to provide evidence around complex estimates. In an experiment with highly experienced auditors, we find that auditors are more hesitant to rely on evidence from AI‐based systems compared to human specialists, consistent with algorithm aversion. Importantly, we also find that a small amount of control (i.e., providing input to specialists) can mitigate this aversion, though this effect depends on auditors' personal locus of control (LOC). Providing input increases reliance on evidence from AI systems for auditors who believe they have little control over their outcomes (i.e., an external LOC). In contrast, auditors with an internal LOC are particularly hesitant to rely on AI‐based evidence, and providing input has little impact on their reliance. Interviews with experienced auditors corroborate our findings and suggest auditors feel a greater sense of control working with human specialists relative to AI‐based systems. Overall, our results suggest perceived control plays an important role in auditors' aversion to AI and that auditors' individual traits can affect this aversion.

This paper studies accounting and silence. Building on studies of accounting talk and introducing theories of “silencing,” we highlight the role of accounting silences in the production of engaging organizational conversations. Through a qualitative case study, we identify three forms of silence—the unspeakable, the unsaid, and the inaudible—and their links to accounting. Silences create motivations to engage in further accounting talk, but they also deny certain groups a voice in those conversations. An impression of participation, openness, and transparency emerges despite unequal access and the silencing of certain groups. Accounting itself can be silenced to avoid uncomfortable topics, potential problems, and anxiety‐inducing uncertainties. This silencing may serve to preserve a useful ignorance, avoid being in the know, and build alluring narratives and engaging conversations. Accounting silences sustain such conversations by protecting them from alternative voices, unsettling knowledge, and narratives that are incompatible with the organization's preferred story.

Discourse proclaiming the advent of a fourth industrial revolution predicts significant disruption to various work domains in the near future. Auditing is one of the domains where bold claims about the potential of technology are being made, with technology expected to augment auditors' judgments and, in time, possibly automate them. Drawing on 44 in‐depth interviews with auditors, regulators, and emergent artificial intelligence software providers, we question the prevailing narrative around technological change in auditing which suggests that ostensibly simple, low‐level technical tasks are areas where little judgment is at play and thus are ripe for automation. We show that significant elements of deliberation, sensemaking, and reflexivity, arguably critical for the socialization of early career auditors into the profession, may be lost when automating areas of work perceived as low value, leading us to question what it means to apply judgment in auditing. Conversely, higher‐level aspects of the audit process may be assisted by technology and augmented in different ways, yet new technological structures generate new areas of indeterminacy that pose new and yet unresolved demands on auditors' judgment. Overall, the paper shows how auditor habits are changing and highlights the risks posed by new technologies to the acquisition of practical knowledge by auditors.

This study investigates whether and how firm‐specific news media coverage affects corporate voluntary disclosure. I predict that media coverage influences managers' disclosure decisions by directing investor attention toward firms and increasing investor demand for firm information. I find that managers are more likely to issue earnings guidance if their recent earnings guidance receives more media coverage. The relation between media coverage and guidance issuance is stronger for news articles that purely disseminate information quickly and are published by news outlets that target institutional investors. Consistent with my hypothesis that media coverage influences investor demand for information, I find evidence that media coverage of guidance positively relates to subsequent institutional information search activity, which in turn positively relates to future guidance issuance. Examining sources of plausibly exogenous variation in media coverage, I find further corroborative evidence of a positive relation between media coverage and earnings guidance. Overall, these analyses indicate that the news media influence managers' provision of voluntary disclosure.

This article examines the effect of managers' personality trait of extraversion on the voluntary disclosure of their firms. Our results from analyzing archival data from Sweden show that the extraversion scores of CEOs and CFOs obtained from psychological tests are positively associated with the voluntary disclosure scores of their firms. The effect of managerial extraversion on disclosure is, moreover, stronger when managerial discretion or managerial job demands are higher. We also find that extraversion affects managers' disclosure styles during earnings conference calls.

We build on recent advances in options pricing research to propose a novel measure of the ex ante relative importance of information events. Our firm‐level measure captures the extent to which investors view an event as important, independent of its realized outcome. We first validate the measure and then demonstrate how it can be used to (1) study heterogeneity across firms in the relative importance of information events; (2) identify firms for which an event was important, even though the realized outcome did not result in a meaningful stock reaction; and (3) examine questions about how the importance of an event impacts firm decisions, where using realized return‐based measures of event importance would result in an endogeneity problem.

In 2018, the European Union (EU) introduced a new mandatory reporting requirement for a wide range of cross‐border tax arrangements (EU Directive 2018/822, also known as DAC6). Unlike prior corporate transparency initiatives, which put the reporting responsibility primarily on the taxpayers, this directive puts the initial reporting responsibility on the third‐party intermediaries who are involved in the reportable arrangement at any stage during the planning and execution process. We exploit the adoption of DAC6 in the EU to examine the effectiveness of third‐party reporting in curbing cross‐border tax planning by multinationals. Using a difference‐in‐differences research design, we find that affected firms reduce income shifting and report higher effective tax rates in the post‐adoption period. The reduction in income shifting is stronger for affiliates operating in countries without legal professional privilege extensions and in countries where noncompliance penalties are higher. Our results highlight the importance of strong third‐party reporting requirements in constraining cross‐border tax planning.

We examine whether the change in earnings announcement textual tone, aggregated across individual publicly traded firms, helps predict gross domestic product (GDP) growth. The literature finds that changes in aggregate accounting earnings do help predict GDP growth, but only when aggregate earnings changes are negative. Because conservative accounting rules limit managers' ability to communicate positive news promptly, we examine the tone of quarterly corporate earnings announcements as a possible source of timely positive information provided by firms. We find that the change in aggregate tone in the earnings announcements from the same quarter in the previous year predicts one‐quarter‐ahead GDP growth, but only when the change is positive. Our study contributes to the literature by investigating the relation between aggregate corporate disclosure tone and macroeconomic outcomes.

In response to the extended audit report regulations implemented in the United States and internationally, both audit firms and regulators have increased scrutiny over critical audit matters/key audit matters (collectively referred to as CAMs) through internal and external inspections. At the same time, auditors and audit committees (ACs) have altered the content and timing of CAM‐related discussions by communicating specific planned audit procedures earlier in the audit process. This study explores the effect of early communication of CAM‐related audit procedures to the AC and increased scrutiny from inspections on auditors' propensity to adjust planned audit procedures in the presence of newly identified audit risks. Based on self‐justification theory, we predict and find that early communication of planned audit procedures to the AC causes auditors to be less likely to adjust planned audit procedures even when additional risks arise that necessitate change, especially when inspection is likely. This has the potential for diminished audit quality. Interviews with audit partners provide context for how these findings relate to the current auditing environment.

In this field study, we examine tax advisors' decision‐making process when developing tax planning arrangements. Through interviews with 40 tax advisors, our analysis indicates that tax savings may come at a price in practice by unveiling adverse post‐implementation experiences shared by tax partners. Partners find themselves in a tricky position at the time they form their recommendation as they cannot be certain that their client will be able to “live with their tax structure”—that is, maintain it and cope with the inherent risks once implemented. Their main concern is that their client may “get caught out” by a structure too aggressive or complicated for them, having no control over the client's behavior once the plan is implemented. This has significant implications in the tax planning decision‐making process as these concerns shape how partners adapt their work to their client's perceived competency and possibly restrain corporate firms' tax aggressiveness. Following Feller and Schanz (2017, Contemporary Accounting Research , 34 (1), 494–524), we conceive of this as the fourth hurdle of tax planning— whether a tax structure is maintainable, as perceived by tax advisors—and unpack how it operates. Interestingly, restraining the client's tax planning aggressiveness (and the corresponding potential tax savings) is not necessarily perceived by partners as detrimental to the client relationship. Our findings contribute to a better understanding of tax planning in action, highlighting how tax partners seek to influence their client's tax planning aggressiveness.