Culverhouse School of Accountancy

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Browsing Culverhouse School of Accountancy by Subject "Business Administration, Accounting"

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    The effects of internal audit role and reporting relationships on investor perceptions of disclosure credibility
    (University of Alabama Libraries, 2009) Holt, Travis Paxton; DeZoort, F. Todd; University of Alabama Tuscaloosa
    This study assesses whether internal audit role and reporting relationships affect investor judgment and decision-making. Specifically, the study examines whether investor perceptions of disclosure credibility of financial statement information are increased by the inclusion of an Internal Audit Report (IAR) that details an internal audit function whose role is primarily assurance-related (versus consulting-related) and who reports strategically to the audit committee and administratively to the CEO (versus strategically and administratively to the CFO). The study also tests whether the effects on investor perceptions of disclosure credibility are mediated by investor perceptions of the level of assurance provided by internal audit. The study is motivated by a lack of information about firms' internal audit functions given the function's key role in corporate governance and by the need to better understand the influence of various internal audit characteristics on investor judgment and decision-making. The lack of this governance information is costly to firms due to investors demanding a premium to bear the risks associated with the uncertainty. The experiment used a 2x2 design with internal audit role (i.e. primarily assurance vs. primarily consulting) and reporting relationship (i.e. reports strategically to the audit committee and administratively to the CEO vs. strategically and administratively to the CFO) randomly manipulated between subjects. The participants of the study were comprised of 84 MBA students serving as proxies for nonprofessional investors. The results indicate that participants perceived disclosure credibility to be significantly higher when the Chief Audit Executive reported strategically to the audit committee and administratively to the CEO (versus both strategically and administratively to the CFO). Mediation testing indicates that this increase in perceived disclosure credibility was attributable to an increase in the level of assurance provided for the disclosed financial information. The results reveal no significant differences in perceived disclosure credibility from the differing internal audit roles. Finally, supplemental analysis indicate that the reporting relationship judgments ultimately affected participants' price-earnings multiple decisions.
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    Investigating the effects of post-audit review salience on auditor judgments: a comparative analysis of audit planning and reporting decisions resulting from PCAOB inspections and internal quality reviews
    (University of Alabama Libraries, 2009) Stefaniak, Chad Matthew; Houston, Richard W.; University of Alabama Tuscaloosa
    This paper reports the results of a study investigating the effects of PCAOB inspection (Inspection) and internal quality review (IQR) salience on auditors' audit planning and reporting decisions. To investigate these judgments, 48 auditors participated in a 1 x 3 between-subjects experiment in which the salience of a post-audit review is manipulated as Inspection salient, IQR salient, or no post-audit review is salient. Manipulating post-audit reviews salience is justified using the results of Stefaniak and Houston (2009), which suggest 63 (62) percent of their audit partners can or try to anticipate the engagements that will be selected for IQR (Inspection). Using the Houston, Peters, & Pratt (2005) model, I predict that auditors will assess higher audit fees in conditions where a post-audit review is salient. Using extant accounting research on the influence of accountability (DeZoort, Harrison, & Taylor, 2006) and sanctions (Shafer, Morris, & Ketchand, 1999), I also predict that auditors will make more conservative judgments in conditions where a post-audit review is salient. While I do not find auditors were more conservative in their judgments, I do find that post-audit review salience significantly increases audit fees. Furthermore, post-audit review salience significantly increased perceived litigation risk, overall client riskiness, substantive testing efforts, and budgeted hours, as well as significantly decreased the perceived financial condition of the client. This study is important for several reasons. First, it provides initial evidence as to the impacts of IQRs on auditor planning decisions, a quality review mechanism thus far not considered in the accounting literature. Second, it provides initial evidence and understanding of whether, and how, auditors pass post-audit review costs along to their clients.
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    Three essays on institutional investors and income taxes
    (University of Alabama Libraries, 2009) Usrey, Spencer Conley; Schnee, Edward J.; University of Alabama Tuscaloosa
    This dissertation investigates the role of institutional investors in capital market tax studies. Specifically, this studies examines how institutional investors influence firms' cost of capital and financing decisions following changes in personal tax rates on debt and equity income. The dissertation is organized into three essays that examine these topics. The first two essays examine tax rate changes in 1997 and 2003 that reduced the personal tax rates on interest, capital gains and dividends. Essay 3 summarizes relevant literature involving institutional investors and capital market tax studies. Essay 1 investigates whether differences between the tax liabilities of the underlying shareholders of institutional investors affect firms' capital structures and decisions to issue debt versus equity following changes in tax rates on investment income received by individuals. The study predicts that firms with high concentrations of tax disadvantaged institutional investors (institutions whose underlying shareholders are taxable) will issue more equity relative to debt than those with high concentrations of tax-advantaged institutional investors (institutions whose underlying shareholders are not taxable). The results find that the financing decisions of firms with high levels of tax-disadvantaged institutional investors are influenced by changes in individual tax rates. Essay 2 investigates whether differences in the tax attributes of the underlying shareholders of institutional investors influences the impact of equity tax rate changes on a firm's cost of equity. The study examines a sample period of two years (eight quarters) around the enactment of the 1997 and 2003 Acts. The study finds that firms with high levels of tax-disadvantaged ownership experienced a decrease in their cost of equity capital following a decrease in the individual tax rate on capital gains. In addition, the interaction of the institutional investor dummy variable and a dummy variable indicating the observation is after the 2003 Act indicates that the cost of equity capital for firms with high levels of tax-disadvantaged ownership decreased following the 2003 Act. The results of Essays 1 and 2 provide evidence that institutional investors are not homogeneous with respect to their influence on firms' cost of capital and financing decisions following changes in individual tax rates.