Prior research on justification has typically focused on the differences in judgments between auditors required, or not required, to justify their decisions. However, justification memos can be prepared using different approaches. In this study we examine the impact of using three justification memos: supporting, balanced, and component. Using a comprehensive control environment case based on an actual client that experienced fraud, we find that the justification memo used can affect the judgments of auditors preparing the memos as well as the judgments of auditors who review their work. Specifically, the results indicate that auditors using an unrestricted component memo, who were required to write memos for components of their task by providing important positive and negative evidence, thought that the firm's control environment was more likely to prevent fraud as compared with the supporting and balanced memo groups. Additional analyses suggest that the reason for this result is that an unrestricted component memo focuses auditors’ attention on a larger percentage of positive control environment characteristics when a firm's underlying evidence set is mostly positive. This may be problematic because firms can have more positive than negative control environment characteristics, even when fraud is present.

This study compares four broadly available industry classification schemes in a variety of applications common to capital market research. Standard Industrial Classification (SIC) codes have been available since 1939 but are being replaced by North American Industry Classification System (NAICS) codes. The Global Industry Classifications Standard (GICS) SM system, jointly developed by Standard & Poor's and Morgan Stanley Capital International (MSCI), is popular among financial practitioners, whereas the Fama and French [1997] algorithm is used primarily by academics. Our results show that GICS classifications are significantly better at explaining stock return comovements, as well as cross‐sectional variations in valuation multiples, forecasted and realized growth rates, research and development expenditures, and various key financial ratios. The GICS advantage is consistent from year to year and is most pronounced among large firms. The other three methods differ little from each other in most applications.