Knowledge that Transforms

[This paper examines the marginal contribution of scores on the AICPA level I achievement test and aptitude test for predicting the performance of students in upper division courses. Three performance measures were studied: grades in all upper division courses, grades in upper division accounting courses, and a binary variable reflecting whether a student made a C or below on an upper division accounting course. Results for each of these measures indicated that the AICPA scores did not improve significantly the predictive ability of models that included lower division grades. Several limitations of the study are described.]

[Managers would likely have different ways, termed games, of coping with their superior's budgetary leadership style and the interpersonal stress associated with budgeting. Additionally, these factors are likely to be associated with different budgetary attitudes. We examined the patterns of gameplay as well as leadership styles and role stress to determine whether these factors were correlated with the subordinates' attitude toward achieving their budget. We found that the game patterns of DEVIOUS, ECONOMIC, INCREMENTAL, and TIME were correlated with subordinates' attitude toward achieving their budgets, particularly when considered in the context of their superior's leadership style and the amount of role stress present. In particular, we found that a manager with a positive budgetary attitude used the ECONOMIC, INCREMENTAL, or TIME game pattern, avoided the DEVIOUS pattern, had low role stress, and had a superior with a punitive leadership style.]

[In 1981, Congress enacted a "safe harbor" lease law that permitted firms to sell unneeded tax depreciation deductions and tax credits to other firms. During the effective life of the law, the Financial Accounting Standards Board (FASB) did not establish reporting or disclosure requirements for firms entering the safe harbor transactions. Because of this, many policies were followed. This paper examines the impact of this lack of reporting and disclosure guidance on the comparability and interpretability of financial statements across firms involved in leasing. This study provides examples of problems the FASB might need to address when analyzing changes under the new tax bill.]

[This paper discusses the effects of setting budget goals on task performance in different task situations. The main hypothesis developed from this analysis is that the effect of setting specific, difficult budget goals on task performance depends on the level of task uncertainty. Specifically, it is argued that, where task uncertainty is high, setting budget goals is less effective in promoting task performance than where task uncertainty is low. In addition, it is suggested that, although limited, available evidence is consistent with this hypothesis. Finally, the research implications of the analysis are considered.]

[This study investigates whether the accrual and funds components of earnings have incremental information content beyond earnings itself. The research design is motivated by the insight that earnings and revenues are announced in the Wall Street Journal before the annual report, which contains both accrual and funds items, is released. This allows a direct measurement of the incremental information content of the accrual and funds components of earnings which is not possible when these releases are treated contemporaneously. This study finds evidence of an association between stock returns, measured over a short interval covering the date the annual reports arrive at the SEC, and new information about the cash and noncash components of earnings released at that time. By itself, this result implies that at least one of these components has information content. After controlling for earnings, incremental information about the cash and noncash components of earnings is precisely the same.]

[Previous investigations of the incremental information content of current cost income have focused on cross-sectional analyses, which assume that the relation between stock returns and specific price-level adjustments is the same for all firms. Beaver et al. [1982] suggest that such analyses may be misspecified and provide preliminary indications that the incremental information content of current cost income may be more evident in a time-series context. The study summarized here provides the first formal examination of the information content of current cost income and historical cost income within a time-series context. Some evidence of incremental information content in current cost income is found in the time-series analysis, even though none is evident in a cross-sectional analysis. However, incremental information content is (at best) evident only for a small subset of industries where the correlation between historical cost income and current cost income is low; for the majority of industries, the two income measures convey essentially the same information.]

[The professional auditing literature identifies the need to evaluate a client's control environment prior to the auditor's design of compliance tests. This study seeks to: (1) identify client attributes that adequately describe a client's control environment; (2) investigate auditors' perceptions of the importance of these attributes on actual engagements; (3) highlight the contextual factors that condition the importance ratings of the attributes; and (4) ascertain the audit team member responsible for evaluating the various attributes. This study identified 48 client attributes that appear to serve as cues for auditors' control environment evaluations. The reported levels of importance for certain attributes differed across auditors. It was found that audit firm affiliation, auditor rank, audit office specialization, the client's management structure, and the client's total assets exhibited significant associations with auditors' ratings. In addition, it was found that seniors were responsible for evaluating most of the control environment attributes.]

[Behavioral researchers have long been concerned about the effects of experience on decision making, especially in highly technical fields such as auditing. Relying on Simon's model of the decision process, this paper provides evidence that the experience effect is significant when task complexity is explicitly considered. It reports the results of a series of experiments examining structured, semi-structured, and unstructured tasks where subjects are pooled into two groups: "experienced" (those having reached the staff level where the required normative skills are developed) and "inexperienced" (lower staff levels or auditing students). Responses to a separate study of 88 partners and managers were used to independently establish the appropriate staff level for each task and complexity. Significant decision differences were found between the experimental groups on each task. Pooling all subjects together, however, showed only an isolated significant experience effect, highlighting the need to consider explicitly and control for task complexity and appropriate normative skills in studying the nature of expertise. These results further suggest that auditing students or less experienced junior auditors are questionable surrogates for CPAs in complex audit decision settings. Future corroborating research examining other audit judgments and other audit populations is encouraged, e.g., design of audit programs.]

[The purpose of this study is to test the feasibility of using a model derived from the judgments of a group of tax experts in controlled experimental conditions to predict actual compliance behavior. A judgment model, using amount of income, source of income, penalty for cheating, and rate structure as independent variables, was derived from CPA tax professionals. The model then was used successfully to predict actual taxpayer compliance using IRS Taxpayer Compliance Measurement Program data. The model also was used to infer the relative importance of the determinants of taxpayer compliance used in the study. Source of income was found to be about three times more important than the next most heavily weighted variable. These results demonstrate the potential for employing a derived judgment model as an efficient means of predicting the effect of proposed changes in tax policy on taxpayer compliance.]

[This paper reports on voluntary financial disclosure practices of Mexican corporations and relates the extent of disclosure to firm size, financial leverage, and proportion of assets in place. Studying the voluntary disclosure of Mexican firms yields additional insights into factors behind voluntary disclosure choices, and enhances our understanding of the accounting institutions and practices of non-Anglo-American nations. Voluntary disclosure varies widely within a sample of 52 Mexican Stock Exchange-listed firms, and the extent of disclosure is significantly and positively related to firm size but not to financial leverage and assets in place.]