I examine how and why current-period performance shapes investors' evaluations of future-oriented disclosures. Three experiments provide evidence that a firm's current-period performance shapes investors' beliefs about the appropriateness of managerial optimism, which, in turn, affects investors' evaluation of firms that focus on either challenges or opportunities in future-oriented disclosures. When a firm is performing poorly, investors believe that managers can best achieve success by being optimistic about the future and, therefore, invest more when the firm focuses on opportunities rather than challenges in future-oriented disclosures. When a firm is performing well, on the other hand, investors believe that managers can best achieve success by being realistic about the future and, therefore, invest more when the firm focuses on challenges rather than opportunities.

Investments that are classified as Level 2 within the fair value hierarchy account for approximately 92 percent of US banks' fair value assets. We report an experiment that examines how experienced auditors apply current PCAOB guidance when auditing portfolios of these assets. We hypothesize and find that, depending on how overstatement is distributed within a portfolio, current PCAOB guidance leads auditors to make adjustments that are predictably larger or smaller than the aggregate overstatement in the portfolio. Auditors are more likely to follow PCAOB guidance when doing so leads to lower audit adjustments and higher client income. We also predict and find that auditors identify some patterns of overstatement as indicative of management bias, but not others. However, management-bias assessments do not affect auditors' adjustment decisions as standards imply they should, even when auditors are prompted to consider management bias. Together, these results highlight a potential deficiency in current auditing guidance that managers could exploit by strategically locating overstatements within securities with larger book values or by spreading those overstatements across many securities within a portfolio. We suggest changes to current PCAOB guidance which may reduce these effects.

We survey 462 financial journalists and conduct 18 interviews to obtain insights on the inputs to their reporting, the incentives they face, and the factors that influence their coverage decisions. We report many findings relevant to the accounting literature and identify multiple avenues for future research. For example, financial journalists say the likelihood they write about a specific company or CEO increases when the company is controversial or the CEO has a colorful personality, suggesting journalists gravitate toward provocative topics. We also find that financial journalists routinely use company-issued disclosures and private phone calls with company management when developing articles, and that they believe they are evaluated primarily on the accuracy, timeliness, and depth of their articles. Journalists also believe monitoring companies to hold them accountable is one of financial journalism's most important objectives, but they often face negative consequences for writing articles that portray companies in an unfavorable light.

Audit firms hesitate to take full advantage of data and analytics (D&A) audit approaches because they lack certainty about how external reviewers evaluate those approaches. We propose that external reviewers use an effort heuristic when evaluating audit quality, judging less effortful audit procedures as lower quality, which could shape how external reviewers evaluate D&A audit procedures. We conduct two experiments in which experienced external reviewers evaluate one set of audit procedures (D&A or traditional) within an engagement review, while holding constant the procedures' level of assurance. Our first experiment provides evidence that external reviewers rely on an effort heuristic when evaluating D&A audit procedures—they perceive D&A audit procedures as lower in quality than traditional audit procedures because they perceive them to be less effortful. Our second experiment confirms these results and evaluates a theory‐based intervention that reduces reviewers' reliance on the effort heuristic, causing them to judge quality similarly across D&A and traditional audit procedures.

We examine how two attributes of preventive and detective controls affect employee performance and employee motivation. Specifically, we examine how the extent to which controls (1) restrict employees’ autonomy, and (2) provide more or less timely feedback impacts employees’ performance and intrinsic motivation. These characteristics are the defining differences between preventive and detective controls in that preventive controls restrict employee autonomy relative to detective controls and preventive controls always provide immediate feedback; whereas, detective controls can provide either immediate feedback or delayed feedback. We conduct an experiment to examine how and why these two types of formal controls impact employees’ performance in an incomplete contract setting in which one dimension of the employees’ task is compensated and one dimension is controlled. The results show that detective controls with more timely feedback improve employees’ performance toward the control objective, without affecting their intrinsic motivation. In contrast, the restriction of autonomy associated with preventive controls, has no additional effect on employees’ performance toward the control objective over detective controls with timely feedback but significantly reduces employees’ motivation. Neither control characteristic has a significant effect on employees’ performance on the compensated dimension of the task, suggesting that monetary incentives continue to provide an effective motivation. Our results reveal the importance of designing and implementing controls that provide timely feedback but do not restrict autonomy.