Recruiting talent is a major issue for the accounting profession and is especially salient for small firms with limited resources and brand recognition. In this study, we examine the challenges small accounting firms face when recruiting from universities and the strategies they use to overcome them. Drawing on interviews with 34 stakeholders (primarily recruiting specialists and human resource managers), we develop a process model of small-firm recruiting and present evidence related to each phase: (1) targeting certain universities and students, (2) engaging in university recruiting activities, (3) extending offers, and (4) aiming to evaluate recruiting outcomes. Guided by theory, our findings reveal that small accounting firms develop organizational familiarity and image with students while navigating fatalism and balancing imitation and differentiation in their recruiting strategies. We conclude with a call to reconsider the “biggest is best” assumptions that dominate mainstream accounting research and provide suggestions for future research. Data Availability: Data were obtained from interviews.

We address how value relevance of accounting information evolved as the new economy developed. Prior research concludes that accounting information—primarily earnings—has lost relevance. We consider more accounting items and find no decline in combined value relevance from 1962 to 2018. We assess evolution in each item’s value relevance and find increases, most notably for items related to intangible assets, growth opportunities, and alternative performance measures, which are important in the new economy. The number of relevant items also increases. We also consider separately new economy, old economy profit, and old economy loss firms. The trends are more pronounced for, but extend beyond, new economy firms. We base inferences on a nonparametric approach that does not require specifying the valuation relation. Taken together, our findings reveal an evolution to a more nuanced, but not declining, relation between accounting information and share price.

We examine firm disclosure choice during the initial public offering (IPO) roadshow presentation to understand the informativeness of a management presentation designed to attract investors. Although firms submit a comprehensive registration filing during the IPO, managers also prepare a roadshow presentation, which is shorter and typically allows managers more autonomy to select the information released and how it is discussed. We find that IPO roadshows have significantly more positive, less negative, and less uncertain language than the SEC filing. Using machine learning to classify roadshow sentences into five major topics from the registration statement, we find that roadshows differ in both the topics selected and the language used within each topic. We then examine the predictive ability of the roadshow language, finding that roadshow language predicts future accounting performance, whereas filing language does not. These results highlight the informational role of management presentations, despite the flexibility they grant managers.

We present new theory and experimental findings indicating that investors ascribe value to firms that use higher financial reporting quality (FRQ), controlling for the influence of higher FRQ on their estimates of these firms' fundamental value. To guide our investigation, we draw on the cooperation literature in accounting, finance, and psychology. We identify expanded audit reports, particularly auditor commentary, as a mechanism that credibly communicates whether a firm uses higher FRQ. Auditor commentary increases investors' willingness to pay (WTP) more for shares of a firm using higher FRQ than a competing firm using lower FRQ. We also provide process evidence that investors perceive higher FRQ as cooperative behavior by measuring their affective responses and cognitive beliefs, which mediate the influence of audit commentary on investors' increased WTP for higher FRQ. A second experiment bolsters the link between investors' affective and cognitive responses to a firm's FRQ and perceived cooperative behavior.

Small accounting firms represent important participants in the audit market, yet details of how they operate and develop competencies remain unexplored. Small firms often join forces through accounting associations and networks (AANs), which may help them overcome significant challenges commonly faced by smaller firms. We interview 37 partners from 18 firms representing nine AANs to examine how small firms leverage their AAN membership and to understand the related implications for audit quality. Our findings indicate that small firms acquire needed resources and enhance their market legitimacy through AAN membership; however, the nature and extent to which they do so varies by AAN type. Importantly, we also find that the majority of respondents perceive AAN resources, especially access to expertise, as critical to their firms' audit quality. Our research, informed by a theoretical lens based on resource dependence and legitimacy, enriches existing auditing literature, provides a new perspective for member firms and regulators, and responds to recent calls to understand factors affecting accounting firms' competencies.

Prior research shows that an audit supervisor’s active intervention in a subordinate’s judgment distorts that judgment. However, subordinates’ judgments are only one input into audit team judgments. How do supervisors finalize audit team judgments after actively intervening in their subordinates’ judgments? In an experiment using audit teams, supervisors with weaker or stronger goals to reach a client-preferred conclusion either were or were not asked to first actively coach a subordinate’s judgment (i.e., active intervention) before reviewing it and finalizing the audit team’s judgment. Supervisors’ intervention influenced subordinates’ inputs, which, in turn, supervisors incorporated into their final judgments. More interestingly, intervention biased supervisors’ final judgments, controlling for supervisor directional goal strength and for concurrent effects on subordinates’ inputs. However, supervisors distorted their judgments less as they perceived a larger technical knowledge advantage over subordinates. In a second experiment, auditors appear aware of the bias-reducing knowledge advantage effects but unaware of the bias-increasing active intervention effects. We discuss implications for audit team judgments and audit quality control.

We characterize the operating-activities section of the indirect-approach statement of cash flows as backward because it presents reconciling adjustments in a way that is opposite from the intuitively appealing, future-oriented, Conceptual Framework definitions of assets, liabilities, and the accruals process. We propose that the reversed-accruals orientation required in the currently mandated indirect-approach statement of cash flows is unnecessarily complex, causing information-processing problems that result in increased cash flow forecast error and dispersion. We also predict that the mixed pattern (i.e., +/−, −/+) of operating cash flows and operating accruals reported by most companies impedes investors’ ability to learn the time-series properties of cash flows and accruals. We conduct a carefully controlled experiment and find that (1) cash flow forecasts have lower forecast error and dispersion when the indirect-approach statement of cash flows starts with operating cash flows and adds changes in accruals to arrive at net income and (2) cash flow forecasts have lower forecast error and dispersion when the cash flows and accruals are of the same sign (i.e., +/+, −/−); with the sign-based difference attenuated in the forward-oriented statement of cash flows. We also conduct a quasi-experiment to test our mixed-sign versus same-sign hypotheses using archival samples of publicly available I/B/E/S and Value Line cash flow forecasts. We find that the passively observed samples of cash flow forecasts exhibit a similar pattern of mixed-sign versus same-sign forecast error as documented in our experiment.

In this paper we investigate the reputational penalties to managers of firms announcing earnings restatements. More specifically, we examine management turnover and the subsequent employment of displaced managers at firms announcing earnings restatements during 1997 or 1998. In contrast to prior research (Beneish 1999; Agrawal et al. 1999), which does not find increased turnover following GAAP violations or revelation of corporate fraud, we find that 60 percent of restating firms experience a turnover of at least one top manager within 24 months of the restatement compared to 35 percent among age-, size-, and industry-matched firms. Moreover, the subsequent employment prospects of the displaced managers of restatement firms are poorer than those of the displaced managers of control firms. Our results hold after controlling for firm performance, bankruptcy, and other determinants of management turnover, and suggest that both corporate boards and the external labor market impose significant penalties on managers for violating GAAP. Also, in light of resource constraints at the SEC, our findings are encouraging as they suggest that private penalties for GAAP violations are severe and may serve as partial substitutes for public enforcement of GAAP violations.

The article presents a report on teaching methods and programmed instructions in the U.S. During the past few years, in the process of continuing search to discover means for increasing instructional efficiency and for developing new materials to cope with the rapidly expanding demands for additional education and training by a burgeoning number of learners, the experimentation and development of programed learning has received the attention of educators and training directors across the country. Programed instruction has found wide-spread usage in industry and in the armed forces in various aspects of training for specific assignments or tasks, in which predetermined performance levels or behavioral patterns had been established. In numerous situations in both education and industry, programed instruction has proved to be effective, and under some circumstances more so than conventional methods. However, at this time research findings, especially at the college level, are totally inadequate to serve as a basis for making decisions on the adoption of programed learning for use throughout any specific course or program.