Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Share Icon Share Facebook Twitter LinkedIn MailTo Tools Icon Tools Get Permissions Search Site Cite View This Citation Add to Citation Manager Citation Mark L. DeFond; Annual Editor Report. The Accounting Review 1 November 2017; 92 (6): 1–24. https://doi.org/10.2308/accr-10612 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentThe Accounting Review Search Advanced Search

ABSTRACT We experimentally study the deception detection capabilities of experienced auditors, using CEO narratives from earnings conference calls as case materials. We randomly assign narratives of fraud and nonfraud companies to auditors as well as the presence versus absence of an instruction explaining that cognitive dissonance in speech is helpful for detecting deception. We predict this instruction will weaken auditors’ learned tendency to overlook fraud cues. We find that auditors’ deception judgments are less accurate for fraud companies than for nonfraud companies, unless they receive this instruction. We also find that instructed auditors more extensively describe red flags for fraud companies and more accurately identify specific sentences in narratives that pertain to underlying frauds. These findings indicate that instructing experienced auditors to be alert for cognitive dissonance in CEO narratives can activate deception detection capabilities.

We study how public and private disclosure requirements interact to influence both tax regulator enforcement and firm disclosure. To capture IRS enforcement activities, we introduce a novel data set of IRS acquisition of firms’ public financial disclosures, which we label IRS attention. We examine the implementation of two new disclosure requirements that potentially alter IRS attention: FIN 48, which increased public tax disclosure requirements, and Schedule UTP, which increased private tax disclosure. We find that IRS attention increased following FIN 48 but subsequently decreased following Schedule UTP, consistent with public and private disclosure interacting to influence tax enforcement. We next examine how private tax disclosure requirements under Schedule UTP affected firms’ public disclosure responses. We find that, following Schedule UTP, firms significantly increased the quantity and altered the content of their tax-related disclosures, consistent with lower tax-related proprietary costs of disclosure. Our results suggest that changes in SEC disclosure requirements altered the IRS's behavior with regard to public information acquisition, and, relatedly, changes in IRS private disclosure requirements appear to change firms’ public disclosure behavior.

Jurisdictions across the United States have adopted “ban the box” (BTB) policies preventing employers from conducting criminal background checks until late in the job application process. Their primary goal is to increase employment for those with criminal records. If individuals with criminal records view these policies as improving their labor market opportunities, they might move to BTB-adopting places in search of employment. In this paper, we consider BTB's effects on the demographic composition of labor markets and the likelihood that residents report recently moving from other labor markets. We find no evidence that BTB affects migration.

We investigate whether firms in close customer–supplier relationships are better able to identify and implement tax avoidance strategies via supply chains. Consistent with our prediction, we find that both principal customers and their dependent suppliers avoid more taxes than other firms. Further analysis suggests that principal customers and dependent suppliers likely engage in tax strategies involving shifting profits to tax haven subsidiaries. Moreover, tax benefits appear to explain both principal customer firms’ and dependent supplier firms’ organizational decisions. Overall, our study provides evidence of the importance of tax avoidance as a source of gains from these relationships.

We utilize the default by Argentina in 2001 and the Global Financial Crisis in 2008, as natural experiments, to monitor the complex interactions between sovereign bonds when subjected to endogenous and exogenous shocks. By forming pairs of Latin American sovereign bonds, bundled into similar maturity class, the analysis highlights the complex nature of risk shifting, and the temporal nature of the volatility transmission and sharing mechanisms in the lead up to, and after, a crisis period. The results show that shorter maturity groups and longer maturity groups behave in fundamentally different ways in terms of volatility transmission, while one or two leading countries act as regional benchmarks. The dynamics are consistent with temporal but segmented investor preferences, with the arrival of crisis contributing to a breakdown in the previous relationships. In addition, there is additional economic benefit from utilizing knowledge of the volatility structure underlying the historic transmission channels to improve the portfolio outcomes of market participants.

We analyze how children with mental disabilities influence parental portfolio allocation. We find that risky asset holding decreases among households with special needs children. However, conditional on participating in financial markets, households with special needs children invest a larger portion of their wealth in risky assets. As risky asset holding is a key component of wealth building, these findings have important implications for both policy and household wealth inequality.

We investigate systematic changes in corporate effective tax rates over the past 25 years and find that effective tax rates have decreased significantly. Contrary to conventional wisdom, the decline in effective tax rates is not concentrated in multinational firms; effective tax rates have declined at approximately the same rate for both multinational and domestic firms. Moreover, within multinational firms, both foreign and domestic effective rates have decreased. Finally, changes in firm characteristics and declining foreign statutory tax rates explain little of the overall decrease in effective rates.