This manuscript reviews the external auditor judgment and decision making (JDM) literature from the past decade by specific tasks in the auditing process. Decomposing the literature review by audit task was chosen to enable audit and behavioral researchers and graduate students to identify the trends of JDM research subsequent to Nelson and Tan's (2005) literature review. In addition to identifying gaps/omissions in the current literature, suggestions for future research are also advanced based on forthcoming transformations in the auditing institutional environment.
When employees share knowledge with their colleagues, the efficiency of the colleagues' performance improves, which positively affects their productivity. However, employees can engage in counterproductive behavior by choosing not to share knowledge (passive behavior) or by choosing to share inaccurate knowledge with their colleagues (active behavior). In this study, we examine how providing relative performance information (RPI) and rewarding individuals with performance-based incentives can jointly affect individuals' choices to engage in counterproductive knowledge sharing behavior. Using an experiment, we identify an interactive effect of RPI and individual incentives, such that participants engage in counterproductive knowledge sharing behavior most frequently when they receive RPI and are assigned individual performance-based incentives. We also observe that RPI increases the frequency of both active and passive counterproductive knowledge sharing behavior.
Companies spend significant amounts of money on tangible rewards programs, even during the economic turmoil of the COVID‐19 pandemic. The prevalence, growth, and significance of these expenditures highlight the importance of understanding the purpose and use of these programs by organizations. Research on public accounting (PA) firms' compensation plans has focused on the balance between professional and commercial incentives in partner profit‐sharing schemes but has failed to examine the incentives for nonpartner audit professionals. However, it is exactly these professionals who do a substantial amount of work on audit engagements. This paper has three main purposes. First, we investigate the nature and composition of PA firms' tangible rewards programs and provide a detailed description. Second, we examine the use of firms' tangible rewards programs to provide evidence of what actions are being rewarded. We use Almer et al.'s (2005, Behavioral Research in Accounting 17: 1–22) framework, which presents dimensions of the auditors' professional contribution, and explores whether firms recognize these dimensions using tangible rewards. Third, we develop future research questions to help explore the use of tangible rewards in firms without structured output. We collect archival data on the use of tangible rewards from each of the Big 4 PA firms and three of the next four largest international accounting firms in Canada. We find that firms use their tangible rewards programs for “building a culture of recognition,” for performance incentives, and for employee and firm development, thus rewarding a broad set of measures beyond the incentive measures for hours worked.
Artisan Flowers Inc.'s (AFI) business is centered on importing and selling cut flowers. The company has entered into a number of lease transactions that have the president of AFI perplexed with their accounting treatment and implications. Now, the audit firm needs to explain to AFI's president the appropriate treatment and implications of these lease transactions using current IFRS (IAS 17) and (optionally) the 2013 Lease Exposure Draft. The purpose of this case is for students to gain an understanding and appreciation of the intricacies of IAS 17 as well as the proposed Lease Exposure Draft and the implication of these standards on debt covenants. Students are asked for an explanation of the conceptual basis for the standards and for an analysis of the impact of the standards on AFI's statement of financial position.
Purpose Audit negotiations are impacted by many factors. This study aims to investigate how two such factors, communication of the National Office Accounting Consultation Unit (ACU) and the auditor’s approach, affect chief financial officers’ (CFOs’) willingness to adjust the financial statements and satisfaction with the auditor. Design/methodology/approach This study uses a 2 × 3 between-subjects experimental design. Participants are 169 highly experienced CFOs and financial officers. The experimental design crosses the two multi-dimensional auditor approaches found in the literature with two influence tactics used to communicate ACU involvement, as well as a control condition, with no communication of the ACU involvement. Findings Communicating the ACU’s involvement as a higher authority (similar to a boss) results in greater willingness to record an adjustment to the financial statements when auditors use a hands-off “compliance-officer” auditor approach, but lower willingness by CFOs to adjust the financial statements when auditors use an expert-advisor auditor approach as compared to when coalition tactics are used. Results also show that communicating the ACU as a higher authority negatively impacts a CFO’s satisfaction with the audit partner. Overall, these results highlight the importance of the auditor’s approach and communication of ACU involvement within the auditor–client relationship. The outcomes of this study are limited to situations where unexpected audit adjustments are found during the year-end process and thus cannot be discussed pre-emptively with clients. Research limitations/implications This paper advances the understanding of how the multi-dimensional auditor’s approach can shape and limit the effectiveness of influence tactics. These factors are important, as auditors are tasked with maintaining not only quality audits but also client relationships. However, although rich in detail, factors other than auditor approach may have inadvertently been manipulated and are driving results. Practical implications The approach taken by the auditor with a client throughout the audit sets the stage during the auditor–client negotiations. Therefore, audit partners must consider their own approach with the client before communicating the ACU’s involvement as the auditor approach shapes and limits the tactics available for use. Using ill-suited tactics may undermine the client’s willingness to record an adjustment to the financial statements and cause undue harm to the auditor–client relationship. Originality/value This paper uses highly experienced CFOs and financial officers to examine how two common elements in the audit negotiation context can significantly affect the outcome to the financial statements and the relationship between the client and audit partner.
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