Barry E. Cushing, D. Gerald Searfoss, Reed H. Randall, Materiality Allocation in Audit Planning: A Feasibility Study, Journal of Accounting Research, Vol. 17, Studies on Auditing-Selections from the "Research Opportunities in Auditing" Program (1979), pp. 172-216

Barry E. Cushing, D. Gerald Searfoss, Reed H. Randall, [Discussion of Materiality Allocation in Audit Planning: A Feasibility Study]: A Reply, Journal of Accounting Research, Vol. 17, Studies on Auditing-Selections from the "Research Opportunities in Auditing" Program (1979), pp. 239-246

We study a principal's choice to centralize or delegate decisions to an agent when delegation can be used to encourage the agent to communicate potential problems. We find that the principal may choose centralization either to exercise better control over the agent's actions or to provide stronger incentives. Delegation emerges in equilibrium only if the costs of effort to acquire information for both the principal and the agent are sufficiently high. We find that increases in the principal's penalties for an incorrect decision may increase the principal's expected payoff, owing to optimal organizational responses. In addition, catastrophic risk, the risk of incorrectly accepting a defective audit (or product), may be greater under centralization than under delegation. Furthermore, catastrophic risk can be increased by well‐intentioned legislative efforts to decrease such risk by, for example, increasing the agent's penalties for failing to take a corrective action, because the organizational structure may change.

This paper considers how the presence of a speculative investor, who bets on a firm's future earnings report, affects how the firm's management manipulates that report. We examine the influence of the speculator's information on earnings management behavior, quality of reported earnings, and stock price efficiency. We also provide predictions for, and interpretations of, short‐window event studies and long‐window association studies.

We define an intertemporal tax discontinuity (ITD) as a circumstance in which different tax rates are applied to gains realized at one point in time versus some other point in time. We study the effects of ITDs on market behaviors at the time of disclosures of firm performance, assuming that all investors who trade firm equities are subject to tax. The results of our paper suggest that relative to an economy in which ITDs are absent, ITDs may dampen trading volume and amplify price changes at the time of disclosure.

This paper analyzes a communication game between a sender and receiver with misaligned incentives. Because of the misalignment, in equilibrium, the sender's privately observed information is not perfectly communicated. We study the relation between the quality of the sender's information and the quality of the information communicated. We establish that the quality of information communicated is a non‐monotonic function of the quality of the sender's information, and it is maximized when the sender has imperfect information. We suggest that our model applies to a setting where an equity research analyst communicates information about a firm's value to investors.

Ronald A. Davidson, Willie E. Gist, Empirical Evidence on the Functional Relation between Audit Planning and Total Audit Effort, Journal of Accounting Research, Vol. 34, No. 1 (Spring, 1996), pp. 111-124

Reporting lags, Squared market model prediction errors, Information content, SEC Filings

Ricks [1982] found that stock returns near the earnings disclosure dates of 1974 LIFO adopters were negative and significantly lower than returns near the earnings disclosure dates of firms not using LIFO. Given that firms adopting LIFO in 1974 were voluntarily switching to an accounting method providing often significant tax savings, it is not obvious why investors would have reacted negatively. Nor is it likely that investors were unaware of many of the firms' LIFO adoption decisions. This study presents evidence suggesting that the negative excess returns observed by Ricks [1982] were associated with, and possibly due to, analysts' systematic overestimates of earnings of firms adopting LIFO in 1974. We are aware of no previous study documenting systematic errors in analysts' earnings forecasts conditional on a voluntary accounting method change.

Robert J. Swieringa, Karl E. Weick, An Assessment of Laboratory Experiments in Accounting, Journal of Accounting Research, Vol. 20, Supplement: Studies on Current Research Methodologies in Accounting: A Critical Evaluation (1982), pp. 56-101