Statement of Financial Accounting Standards (SFAS) No. 130 requires companies to report comprehensive income in a primary financial statement, but allows its presentation in either a statement of comprehensive income or a statement of stockholders' equity (Financial Accounting Standards Board [FASB] 1997). In an experiment, we examine whether and how alternative presentation formats affect nonprofessional investors' processing of comprehensive-income information, specifically, information disclosing the volatility of unrealized gains on available-for-sale marketable securities. The results show that nonprofessional investors' judgments of corporate and management performance reflect the volatility of comprehensive income only when it is presented in a statement of comprehensive income. We provide evidence consistent with our psychology-based framework that these findings occur because format affects how nonprofessional investors weight comprehensive-income information and not whether they acquire this information or how they evaluate it.

[A review of preparers' workpapers can lead to the detection of "classification" errors (i.e., incorrect determinations with respect to sampled audit items) and/or "conclusion" errors (i.e., incorrect conclusions about populations of audited items). We examined the effects of familiarity with the preparer and task complexity on reviewers' effectiveness at detecting these errors. The results indicate that reviewers of unfamiliar preparers reperform more of the preparers' work but do not detect more classification errors. Preparer familiarity and task complexity interactively determined effectiveness at detecting conclusion errors: when the task was complex, reviewers of familiar preparers detected more conclusion errors than reviewers of unfamiliar preparers. However, performance did not differ on the routine task. Furthermore, reviewers of familiar preparers were more effective on the complex relative to routine task, but the reverse result was true for reviewers of unfamiliar preparers.]

Examines the effects of familiarity with the preparer and task complexity on reviewers' effectiveness at detecting `classification' and/or `conclusion' errors in the audit review process. Overview of the review process; Deterioration in decision-making effectiveness; Between-familiarity comparisons; Within-familiarity comparisons.

Recent corporate governance reforms that require audit committees to pre-approve audit and nonaudit services increase audit committees' accountability to third parties for actual auditor independence and audit quality. Other SEC reforms mandate the disclosure of fees for auditor-provided services and are aimed at influencing investors' perceptions of auditor independence. These fee disclosures also reveal audit committees' pre-approval decisions, enhancing public accountability. Thus, audit committees may be less willing to hire auditors for nonaudit services to avoid fee disclosures, even when joint provision improves audit quality. One hundred experienced corporate directors, responding as audit committee members or investors, participated in an experiment in which we manipulated the effect of the auditor's provision of nonaudit services on audit quality and the fee disclosure requirement. We find that audit committee members are more likely to recommend joint provision if audit quality improves, consistent with investors' preferences. However, unlike investors, committee members are more reluctant to recommend joint provision when public disclosures are required, even at the expense of audit quality. These findings offer evidence about an indirect effect of recent reforms.