Knowledge that Transforms

The existence of fictitious users of financial statements has been confirmed in previous research. Our study investigates how this powerful yet ‘made-up’ construct is deployed within the discourses of the main stakeholders including ‘real’ users themselves, as they shape regulatory debates in the international accounting standard-setting arena. We draw on Bourdieu’s theorization of dominant discourse as a form of implicit power, and develop it further within the phraseological theory of meaning, specifically the linguistic concept of collocation, which focuses on habitual language patterns. Using this framework, we conduct a comparative analysis of the recurrent linguistic choices around the term ‘user’ in comment letters submitted in response to selected IASB’s regulatory proposals. Our study provides empirical evidence for the existence of commonalties and subtle differences in the ways in which made-up users are discursively operationalized by four key accounting constituent groups: the accounting profession, preparers, regulators, and ‘real’ users of financial statements. At the theoretical and methodological level, we demonstrate the explanatory power of the concept of collocation and its role in the identification of implicit patterns of dominant discourse in Bourdieu’s sense. Our research also shows that the close investigation of how the dominant discourse of the made-up users works generates a series of new why questions regarding the ‘real’ users’ role in accounting standard setting.

Taking inspiration from studies of performance measurement systems and an understanding of the materiality of inscription devices, we examine how a loose network of funding agencies and non-governmental organizations (NGOs) assemble a performance and management system out of accountability requirements. As part of the funding process, international development agencies provide NGOs with a series of planning and project reporting requirements such as budgets, operational plans, and strategic plans. Our study focusses on how these requirements' visual features enable users to perform the calculative properties of the performance system, as a whole. Specifically, we learn how a planning and performance measurement device such as the logical framework accumulates financial, chronological, and strategic modes of ordering through a patchwork of interventions to address perceived and unexpected shortcomings. We find that it is not just a matter of adding patches to improve, but also about fostering engagement with the changing assemblage of devices and development concerns. Our study is based on field research in Guatemala and El Salvador and contributes to our understanding of how governing bodies intervene in the constitution of a calculative workspace. By analysing an accounting system's relation with other devices and their modes of ordering and calculating, we learn how a workspace for providing accounts is assembled and engaged with for actors to perform a mode of governing.

We investigate the joint effect of managers’ self-inclusive language (SIL) and performance news on investors’ reactions to accounting disclosures. We identify two types of SIL: individual SIL, which includes first-person singular pronouns (e.g., I, me) and collective SIL, which includes first-person plural pronouns (e.g., we, us). When performance news is negative, individual SIL implies that a manager is claiming sole responsibility for the unfavorable event whereas collective SIL and SEL diffuse responsibility. Therefore, we predict higher perceptions of manager credibility for individual SIL relative to collective SIL or self-exclusive language (SEL) when performance news is negative, which, in turn, increase investment judgments. We use a between-subjects experiment to test our predictions. Results show higher perceptions of manager credibility and higher investment judgments for individual SIL relative to collective SIL or SEL when performance news is negative. Results of a maximum likelihood estimation suggest that perceptions of manager credibility mediate the effect of individual SIL on investment judgments, supporting the notion that individual SIL exerts an indirect effect on investment judgments. We supplement experimental evidence with an analysis of managers’ SIL in a large sample of earnings conference calls. We document a positive (negative) market reaction to individual (collective) SIL when performance news is negative, consistent with our Hypothesis. We also find a positive market reaction to individual SIL when news is positive. Overall, our study offers multi-method evidence of the impact of a subtle and easily overlooked component of managers’ language on investors’ judgments.

Financial statement amounts are established by managers and verified by auditors, and reporting and audit processes are overseen by audit committees of individuals having varying levels of knowledge about and experience with specific financial reporting tasks. As such, understanding how monitoring decision inputs, such as individual task-specific experience, affect reporting outcomes is essential for understanding the monitoring ability of audit committees, particularly when tasks are complex. Grounded in behavioral theory and using archival data, I examine whether and how individual audit committee member task-specific experience affects group financial reporting outcomes and whether effects are consistent with contagion or conservatism. Using a sample matched on audit committee selection characteristics, I find audit committee task-specific experience is associated with goodwill write-off decisions and I find no incremental effect of task-specific experience of individuals with appointed or other high-status characteristics, consistent with task-specific experience itself elevating status in group decision making. Further, results support the conclusion that audit committee task-specific experience induces conservative outcomes, rather than contagion of decisions between firms. Results should be important for assessing the monitoring ability of audit committees, particularly when managerial incentives to bias earnings are present.

This study investigates the effect of subordinate perceptions of the legitimacy of the superior in her role on subordinate misreporting. Using social norm theory regarding property rights, we predict that when subordinates perceive a superior as having more role legitimacy, they perceive the superior as being a more rightful claimant of project profits, which reduces misreporting. We test this prediction using a participative budgeting experiment that manipulates perceptions of the superior's role legitimacy. We find that budgetary slack is lower when subordinates perceive superiors to be legitimate in their roles than when subordinates perceive superiors to be illegitimate. Further, comparisons to a baseline treatment intended to induce neutral perceptions of role legitimacy, as in prior research, suggest that superior role legitimacy decreases slack. Supplemental experiments suggest that these results are generally robust to several design choices. The results from our three experiments suggest that role legitimacy decreases slack relative to random (neutral) perceptions; however, we do not find a statistically significant increase in slack from role illegitimacy relative to random perceptions across our three experiments. We discuss methodological implications from focusing on promoting role legitimacy and implications for practice, which has largely focused on problems from, and avoidance of, illegitimacy.

Integrating recent theorizing on complementarity and situational strength with management control system (MCS) theory, we investigate how, why and under what circumstances companies may beneficially combine results control and two value-based controls (the use of belief systems and employee socialization practices) to handle the goal alignment problem that typically arises when managing company-level profitability. Drawing upon a survey of MCS practices in 103 strategic business units within the largest companies in Sweden, we find that the use of socialization practices reinforces the marginal return of results control, and vice versa. We also find that higher levels of environmental unpredictability both strengthen this synergetic effect, and reveal a similar complementarity effect of the simultaneous use of results control and the belief system. Our study thus contributes to the MCS literature by showing that; (i) results control may beneficially interact with two important, yet largely unexplored value-based controls, (ii) situational strength theory is highly useful for analytically disentangling the (dis)abilities of these controls in terms of them conveying clarity, consequentiality, consistency and constraint, respectively, and; (iii) the extent to which these controls convey non-overlapping, yet complementary abilities to address the goal alignment problem (required to produce synergetic effects on company-level profitability) is dependent on environmental context.

In this study, we experimentally investigate how managers' budget reporting behavior is influenced by two important features of the budgeting system: the measurement basis used in budget preparation (i.e., whether managers make budget reports in financial or nonfinancial measures) and managers' slack benefits in budget execution (i.e., whether managers benefit from budgetary slack directly or through an intermediate activity). While prior research suggests that moral self-regulation helps promote honest behavior, we predict that a financial measurement basis undermines moral self-regulation by strengthening the manager's desire to advance self-interest and that the absence of direct slack benefits undermines moral self-regulation by making misreporting more justifiable. We also predict that the effects of these two budgetary features on honesty are non-additive, due to the manager's diminishing marginal net utility from misreporting. Experimental results are consistent with our predictions. The implications of our findings for management accounting theory and practice are discussed.

We investigate whether accounting conservatism can be explained as a rational response to ambiguity. Decision analysis shows that decision rules that work well under ambiguity put greater weight on negative than on positive outcomes, i.e., exhibit caution. Accounting conservatism increases the timeliness of bad news that is more relevant under cautious decision rules and thereby helps corporate managers and investors implement them. We, therefore, hypothesize that firms facing greater ambiguity report more conservatively. We adopt two different measures to proxy for the firm-specific level of ambiguity. First, we identify firms pursuing the “prospector” versus “defender” business strategies. Compared with defenders, who focus on utilizing existing resources, prospectors actively create their future by seeking new business opportunities and thus face greater ambiguity. Second, we conduct an additional set of tests based on environmental scanning, which reduces ambiguity. Both sets of results suggest that firms facing greater ambiguity report more conservatively.

Researchers have examined the socialization of auditors at various stages of their professional development, but they have done little or no work on the continued effects of this socialization after auditors leave the firms. Put simply, they have not explored the ways that ex-auditors remember their past. Drawing on the literature in social memory studies and on 37 semi-structured interviews with ex-auditors who used to be employed at large Canadian accounting firms, we perform memory work to examine how ex-auditors transform their audit experience into cultural memory. The narratives of past audit experience elicited during the interviews reveal that ex-auditors develop a complex contemporary representation of this experience. When they solicited their communicative (individual) memories, our participants remembered multiple conflicts between their self-identity and the normative work environment during their time at the firms. However, when they reflected on the impact of their audit experience on their new careers, an alternative and much more collective version of this past emerged. Cultural memories with an elitist and class work dynamic that maintained and justified claims of professional and social superiority began to predominate. We argue that communicative and cultural memory are connected because it is communicative memory that allows cultural memory to take on social forms and exercise cultural domination. Our study makes three important contributions. First, it broadens the socio-temporal perspective of auditing research by highlighting the continued effects of the professional identity of auditors after they change careers. Second, it shows that representations of the past provide ex-auditors with a powerful means to promote their professional interests and structure power relationships within organizations. Third, it introduces the use of reflexive memory work as a rigorous methodological approach in accounting and organizational research.