ABSTRACT: This study examines whether the market reacts more strongly to earnings forecast revisions when financial analysts supplement their earnings forecasts with sales forecasts. I find that earnings forecast revisions supplemented with sales forecast revisions have a greater impact on security prices than do stand-alone earnings forecast revisions, controlling for the incremental information content in sales forecasts. Supplemented earnings forecasts are more accurate ex post, controlling for other individual analyst characteristics. Results are robust to controlling for earnings persistence and time effects. Taken as a whole, financial analysts are more likely to supplement their earnings forecasts with sales forecasts when they have better information. Supplementary sales forecasts appear to lend credibility to earnings forecasts because financial analysts provide sales forecasts when they are more informed.

Abstract This study investigates whether the net deferred tax liabilities disclosed under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109) provides additional value-relevant information over the disclosure required by Accounting Principles Board Opinion No. 11, Accounting for Income Taxes (APS No. 11). Evidence suggests that SEAS No. 109 data represent value-relevant information above and beyond APB No. 11. Additionally, evidence indicates that the changes made by SFAS No. 109-the separate recognition of deferred tax assets, the creation of valuation allowances for deferred tax assets and the adjustment of deferred tax accounts for enacted tax rate changes-each provide value-relevant firm data. These results suggest that SFAS No. 109 increased the value-relevance of deferred tax amounts in financial statements.

Abstract This study investigates the separate and joint effects of prior knowledge and accountability on performance in the information search phase of a tax research task. An experiment is reported in which 63 tax professionals performed a computer-based tax research task. The results indicate that increases in effort duration, which are partly attributable to the accountability manipulation, improved search effectiveness regardless of the level of prior knowledge. In addition, after controlling for the effect of effort duration, accountability had an incremental positive effect on performance among the more knowledgeable professionals. These results suggest that effort can substitute for knowledge in performing information search tasks, but this substitution does not appear to be complete. The results also support the hypothesis that the effect of accountability on performance depends upon the level of knowledge, which suggests that certain aspects of effort and knowledge act as complements in improving performance.

Abstract Economic theory stresses that opportunity costs are relevant to resource allocation decisions, while prior empirical accounting research finds that decision makers tend to ignore or underweight opportunity cost information. This study examines whether accounting knowledge is associated with a decision maker's tendency to ignore opportunity costs in business decisions. The experiment's results indicate that the number of opportunity costs ignored by subjects in a business resource allocation decision is greater for subjects with high-accounting knowledge than for subjects with low-accounting knowledge. The experiment also indicates that subjects with high- accounting knowledge ignore a greater number of opportunity costs when the decision is posed in a business context than when it is posed in a personal context.

Abstract Examines the influence of annual earnings announcements on financial forecasts. Convergence of beliefs; Earnings surprise; Suggestion that annual earnings announcement should increase the convergence of analysts' forecasts of future earnings.

Abstract The article focuses on computer-assisted instruction (CAI) for elementary accounting. CAI materials for a two-semester elementary accounting course are being developed at the University of Illinois at Urbana-Champaign. The intent of the present paper is to report the progress of CAI, which has potential for great effectiveness in accounting education in anticipation of avoiding unnecessary duplication of costly effort in this area and to present results of a controlled experiment conducted during the Fall 1973 semester using the completed materials developed for the first semester, accounting principles course. One of the major advantages of materials developed in this project is their adaptability to improvement. This paper presents a discussion of objectives of the project, CAI system used, the approach taken and the experience to date in achievement of objectives. Objectives of the project, started in June 1972, include improvement of instruction in the elementary accounting sequence at the University of Illinois.

ABSTRACT: We examine detection and severity classification of internal control deficiencies (ICD) identified under Section 404 of the Sarbanes-Oxley Act of 2002. While the cost/benefit balance of auditor testing of internal controls is highly controversial, prior research has not examined auditor versus client detection of ICD, nor has it examined factors auditors consider in judging ICD severity. We find that auditors detect about three-fourths of unremediated ICD, usually though control testing. This finding contrasts with extant research inferring control deficiency detection effectiveness from publicly available data, underscoring the value of Section 404 auditor testing in improving financial reporting quality. Auditors judge greater severity when a misstatement has already occurred. In the absence of a misstatement, severity is contingent on client and ICD characteristics, implying a more complex and nuanced judgment process without objective evidence of control failure. We also find that clients often underestimate ICD severity, but this tendency is lower among well-controlled companies with a well-designed Section 404 process.

This study examines how accounting quality relates to firm-level capital investment efficiency. Our first hypothesis is that higher quality accounting enhances investment efficiency by reducing information asymmetry between managers and outside suppliers of capital. Our second hypothesis is that this effect should be stronger in economies where financing is largely provided through arm's-length transactions compared with countries where creditors supply more capital. Our results are consistent with these hypotheses both across and within countries. They are robust to alternative econometric specifications, different measures of accounting quality and investment-cash flow sensitivity, and numerous control variables.

Abstract ABSTRACT: Using two samples (one as an experimental and one as a control), the authors evaluated the joint effect of two factors on the behavior of common stock prices. These factors were (1) the decision to switch the method of costing inventory to LIFO, and (2) the sign of the expected growth in EPS before the announcement of the change was made. The findings in this article appear to support the hypothesis that the decision to change the accounting method of costing inventory to LIFO is given different interpretations by the securities market, depending on the sign of expected growth in EPS. The significance of the joint effect of the two factors and the existence of differential reaction to the accounting change suggests that intervening variables mediate between accounting-based information and the securities market in processing of the signals provided by such information. Different intervening variables may alter the interpretation of the same accounting event.

ABSTRACT Approaches to risk governance are not homogeneous across organizations. Some organizations invest heavily in building formal and strategically focused enterprise-wide risk governance processes whereas others exhibit reduced formality and focus, allowing risk governance to be less structured. We argue that risk governance may best be described as a service dependent upon a network (or ecosystem) of participants who include users of risk information and providers who design and implement risk governance processes. Using a survey sample of 2,380 observations from 2011 to 2016, we find that external calls for enhanced risk governance are positively associated with risk governance processes having greater formality and strategic focus. We find this relationship is partially mediated by internal demands for enhanced risk governance. Further, we find that the positive association between internal demands and enhanced risk governance is reduced by resource constraints and that a risk-seeking attitude is negatively associated with enhanced risk governance. Data Availability: Contact the authors. JEL Classifications: G30; M10; M14; M40.