This research examines how investment experience and financial literacy impact investment‐related judgments. Financial literacy refers to a person's knowledge of fundamental financial concepts. I begin by documenting investors' demographic characteristics and financial literacy using a relatively large sample of participants ( n > 2,000) recruited from Amazon's Mechanical Turk under different categories of investment experience, which I benchmark against national samples of financial capability skills in the United States. I then replicate a sample of three accounting research experiments, varying the type and depth of the underlying accounting issue. Across the three experiments, the data show two main results: First, investment experience strengthens the influence of financial accounting disclosures on participants' investment‐related judgments. Second, financial literacy further strengthens the influence of financial accounting disclosures on investors' (but not noninvestors') judgments. Collectively, these findings suggest that investment experience and financial literacy can help to identify individuals who are more likely to be able and willing to study financial reporting information with reasonable diligence as they form their investment‐related judgments.

The office has been a central site of organizational planning, accountability, and control since the 19th century. Yet it has been the subject of relatively little accounting research. Through the dual theoretical lenses of Foucaultian and Labour Process theories, this study employs historical photo‐elicitation methodology to investigate the implementation of management control and accountability in the scientifically managed office which emerged in the United States during the late 19th and early 20th centuries. Our analysis reveals the manner in which accounting records created new modes of disciplinary control and surveillance within the office and how accounting tasks were de‐skilled in a gradually feminized and mechanized office environment. We also witness the role of accounting in the physical structuring of office space through the assembly line arrangement of office furniture to facilitate paper flows and the installation of record‐keeping systems of surveillance. In addition, our visually derived historical account of these transformations in office administration allows us to reflect on some contemporary issues. The production‐line design and efficiency so promoted by scientific management served as a forerunner to today's open‐plan office, as well as influencing contemporary office management philosophies such as Activity‐Based Working. Furthermore, we seek to inform current debates on the role of accounting in contemporary neo‐liberal society. In the history of the scientific office, we gain an early glimpse of the subsequent role that accounting comes to play within a neo‐liberal agenda as a powerful technology of micro‐measurement and micro‐management.

This study investigates whether task interdependence in teams alters the effectiveness of managerial discretion in motivating team performance. Teams are particularly useful when employees' tasks are interdependent—that is, when the degree to which the increase in team performance resulting from a team member's effort depends on the effort and skills of the other team members. The reason is that the more interdependent tasks are, the more employees need to coordinate their actions and help one another to achieve their objectives. Prior research analyzing settings where task interdependence is absent suggests that providing managers with discretion over team bonus allocation can improve team performance relative to equal team bonus allocations because it strengthens the link between contributions to team output and rewards. Economic theory suggests that managerial discretion will also improve team performance when task interdependence is present and information is efficiently used. However, we use behavioral theory to predict that managerial discretion is less effective in the presence of task interdependence, because managers do not fully incorporate all relevant information into bonus decisions and because managerial discretion hurts coordination and helping, which is particularly problematic under task interdependence. We find that while discretion over compensation has a positive effect on team performance relative to equal bonus allocation when task interdependence is absent, it has a negative effect when task interdependence is present. Additional analyses provide support for our underlying theory. Results of our study contribute to both theory and practice by suggesting that, ironically, managerial discretion may be most useful when the potential benefits of employing teams are lowest and least useful when the potential benefits are highest. Our results help explain why firms often grant managers only partial or no discretion over team members' compensation.

The objective of our article is to obtain a better understanding of how auditors anticipate the potential for PCAOB inspection, experience the inspection, cope with the consequences of the inspection, and understand the PCAOB's influence within the context of professionalism. We use a qualitative approach that uses both surveys (55) and interviews (20) of auditors (of varying rank and firm) across a five‐year period (2012–2017). Respondents suggest that PCAOB inspectors are powerful, representing the “prosecution,” “judge,” and “jury” of the auditing profession. We therefore use a structural metaphor of the PCAOB inspection as a judicial “trial.” By controlling the criteria used to evaluate performance, inspectors have the power to repeatedly “subpoena,” “interrogate,” and return a “verdict” on the firm (auditor); those judged as “guilty” require supervised “probation.” This process is perceived as having improved audit quality but at a cost. Passing an inspection is so important that auditors (firms) have resorted to impression management strategies and “functionally stupid” work practices (e.g., excessive documentation, a decrease in critical thinking as a result of a “box ticking” approach to auditing). Furthermore, some respondents believe that being a good auditor has come at the expense of being a good accountant; the emphasis on audit process and concurrent de‐emphasis on technical accounting could ultimately lead to audits themselves falling short. In addition, it is evident that inspectors and auditors differ in their perceptions of risk, likely manifesting because inspectors are standards‐focused while auditors (firms) are methodology‐focused. Finally, the inspection process has created excessive stress and tension, beyond budget and fee pressures, which some auditors perceive as affecting the pool of talented auditors that firms may be able to attract and retain in the future.

This study examines how frequently firms restate when they materially misstate their financial statements using stock option backdating as the setting. Stock option backdating provides a unique opportunity to study this issue because it is possible to estimate misstatements with publicly available information to a high level of confidence, and the extensive media coverage of backdating notified boards of directors of the significant risk of misstatement. After identifying firms that materially misstated earnings due to stock option backdating with 95 percent (99 percent) probability, we find that only 11.5 percent (16.1 percent) of these firms subsequently restated. Restating firms are larger, have greater board independence, higher litigation risk and ROA, a lower market‐to‐book ratio, less discretionary accruals, and are more likely to have a CFO that was not involved in backdating. Restating firms are also more likely to disclose other adverse news, face securities litigation, and turn over the CFO than firms that appear to materially backdate but do not restate. Since nearly 9 of 10 firms failed to restate, our results give pause to researchers who use restatements as an indicator of misreporting, and to regulators who levy penalties on those who do self‐report.

While prior research focuses on the audit team made up of auditors, we focus on the collective audit team made up of auditors and specialists—in our context, information technology (IT) specialists. Complex systems in today's audits and researcher and regulator concerns regarding ineffective coordination and communication between the two specializations motivate better understanding of this collective audit team. We investigate how auditors and IT specialists perceive their relationship and how the audit process unfolds when these relationships are good and when they are difficult. Results of interviews conducted with Big 4 audit and IT practitioners provide evidence that they perceive their relationship quality to depend on the level of mutual value and respect. Auditors assert a one‐team view of the collective audit team that includes IT specialists, but IT specialists feel auditors see them as a separate team and a “necessary evil.” The audit process vastly differs between relationships perceived as difficult and good. In difficult relationships, the two specializations often struggle for status, with limited communication or effort to understand how their work fits together. Our findings imply difficult relationships are at risk for poor integration and unsupported reliance on IT functions, shedding light on recurring threats to audit quality identified by PCAOB inspections. In good relationships, auditors and IT specialists appear motivated to engage in frequent and open communication to help understand, coordinate, and complete the audit. Inferences gleaned from good relationships let us highlight prescriptions for audit firms to improve effectiveness of collective audit teams.

We examine the effect of stakeholder orientation on firms' cost management as proxied by selling, general, and administrative (SG&A) cost stickiness. Using a sample of 19,783 firm‐years, we find that customer and employee orientation are associated with greater SG&A cost stickiness. Furthermore, the effect of customer orientation on SG&A cost stickiness is more prominent in firms where SG&A costs create high future value, growth firms, and firms with strong corporate governance. In contrast, the effect of employee orientation on SG&A cost stickiness is stronger in firms where SG&A costs create low future value, mature firms, and firms with weak corporate governance. Overall, the association between customer orientation and SG&A cost stickiness is consistent with efficiency considerations (i.e., adjustment costs). In contrast, the association between employee orientation and SG&A cost stickiness is consistent with agency motives such as empire building or “a preference for a quiet life.” In sum, we provide evidence that corporate orientation toward different stakeholders can have different efficiency implications in the context of SG&A resource adjustments and cost management.

Prior research documents that providing relative performance information (RPI) motivates employees to increase effort; however, a potential downside of RPI is that it also motivates employees to distort their effort allocations between tasks such that it can be detrimental to overall firm performance. This study investigates via an experiment how the informativeness of RPI affects employees' effort allocations and performance in a multitask environment. We investigate the informativeness of two RPI design choices that are observed in practice: detail level and temporal aggregation. Regarding detail level, firms may provide each employee's performance ranking on tasks, which is less informative than providing the actual performance score of each employee. Regarding temporal aggregation, firms may provide RPI that is reset each period, which is less informative than RPI that is based on cumulative performance. We find RPI detail level and temporal aggregation interact to influence effort distortion. Specifically, we find that, compared to reset RPI, cumulative RPI leads to greater distortion of effort away from firm‐preferred allocations and that this effect is magnified when RPI provides actual performance scores rather than performance rankings. Finally, high levels of effort distortion hurt overall performance, thereby demonstrating the potentially detrimental effect of effort distortion on performance. Results of our study enhance our understanding of how firms can use their control over the design of RPI to enhance its usefulness in directing employees' effort in multitask environments by highlighting the role that informativeness of information can have on employee behavior.