Theses and Dissertations - Culverhouse School of Accountancy

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    The long-term consequences of disclosure complexity on a firm’s information environment: evidence that disclosure complexity reduces information asymmetry
    (University of Alabama Libraries, 2021) Lawson, James; Lopez, Thomas; University of Alabama Tuscaloosa
    Motivated by recent regulatory discussion on the effects of disclosure length and complexity on investors—which mirrors disagreement in the academic literature on how disclosure “complexity” affects market participants— I investigate the long-term effects of complex disclosures on a firm’s information environment. I find that firms with complex disclosures are characterized by a relatively better information environment than firms with less complex disclosures. While prior research has primarily focused on investor reactions to the filing of a complex disclosure, such as to the initial filing of a firm’s 10-K, I examine the investor response to future firm disclosures. I show that firms that issue complex 10-Ks have lower levels of investor disagreement and information asymmetry at future earnings announcement dates. My study has two important implications. First, my results suggest, contrary to regulatory concerns, that disclosure complexity leads to lower levels of information asymmetry, which results in a more level playing field for investors. Second, I contribute to the academic debate on the effects of disclosure complexity by demonstrating that the time horizon used in the evaluation process is critical in assessing the overall consequences of complexity for a firm’s information environment.
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    Is financial reporting and audit quality lower when auditors lack independence
    (University of Alabama Libraries, 2020-08) Robinson, Ranier Michael; Lopez, Thomas J.; University of Alabama Tuscaloosa
    The Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) are concerned about circumstances that threaten auditor independence based on their belief that auditor independence is essential to the efficiency of capital markets. The relationship between auditor independence and financial reporting and audit quality, have been difficult to establish because the extent of auditor independence is unobservable. Prior research has relied on proxies for auditor independence, and overall the results provided by this research are mixed. In this study, I utilize a sample of firms that switch auditors retrospectively to avoid further violation of SEC independence rules—as a more direct measure of auditor independence. Using propensity score matching and a difference-in-differences research design, I find evidence that independence violations are associated with impaired financial reporting and audit quality. Further, I find improvements in both financial reporting and audit quality subsequent to an auditor switch for independence violation firms relative to non-independence issue control firms. Overall, these results provide justification for regulators’ concerns about the potential negative consequences of a lack of auditor independence on financial reporting quality and audit quality.
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    An investigation of the relationship between mindsets and tasks in an audit environment
    (University of Alabama Libraries, 2020) Blum, Emily; Hatfield, Richard C.; University of Alabama Tuscaloosa
    This dissertation consists of two studies that investigate the connection between mindset and task in the audit environment. The first study, presented in Chapter 2, investigates how a creative mindset will influence auditor decision making on two different task types: structured and ill-structured tasks. A creative mindset can contribute to audit quality by helping auditors recognize problems, generate novel solutions, and overcome fixation on irrelevant data. However, creativity may come with costs—recent psychology research has found that creative individuals are more likely to engage in ethically questionable behaviors. I leverage regulatory fit theory (Higgins 2000; Higgins 2009) to propose an expanded theoretical model of the link between creativity and unethical behavior that integrates task structure into the existing model. Contrary to my predictions, I find that more creative auditors outperform less creative auditors on both structured and ill-structured tasks. Consistent with my predictions, I find that an ill-structured audit task activates a creative mindset. Although I found no evidence of the costs of creativity that have been found in previous works, future research is necessary to explore whether the “dark side” of creativity has implications for audit quality. The second study, presented in Chapter 3, investigates whether skeptical judgment and skeptical action are best facilitated by distinct and contrasting mindsets. Professional skepticism is an essential element of a high-quality audit. I present a framework in which the two elements that comprise professional skepticism—skeptical judgment and skeptical action—differ in that skeptical judgment involves heeding risks whereas skeptical action involves overcoming risks. This distinction suggests that a mindset that facilitates skeptical judgment may impede skeptical action, and vice versa. To test this proposition, I leverage the mindset theory of action phases (Gollwitzer 1990) to align skeptical judgment and skeptical action with two distinct and contrasting mindsets: skeptical judgment with a deliberative mindset, and skeptical action with an implemental mindset. I conduct an experiment in which I manipulate participants’ mindset, and then test both their skeptical judgment and skeptical action on an audit task. Consistent with theory, I find that skeptical judgment and skeptical action are facilitated by contrasting mindsets, which has important implications for researchers and practitioners designing interventions to improve auditor skepticism.
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    An examination of analysts’ target price forecasts after accounting misstatements
    (University of Alabama Libraries, 2020) Street, Daniel Alan; Swanquist, Quinn; University of Alabama Tuscaloosa
    I investigate the magnitude, accuracy, and informativeness of analysts’ target price forecast revisions after material negative accounting misstatements. Although prior researchers find that analysts’ earnings forecasts decline after misstatements, the effects of misstatements upon analysts’ target price forecasts have not yet been investigated. Relative to analysts’ target price forecasts for control firms, I find that analysts decrease their target price forecasts more sharply for misstating firms. Although analysts’ target price forecast revisions are somewhat less accurate for misstating firms, I find that analysts’ target price forecast revisions for misstating firms remain informative to the stock market. Several misstatement and target price forecast characteristics (misstated account, misstatement intention, SEC investigation, and CEO turnover after misstatement) affect the average magnitude, accuracy, and informativeness of analysts’ target price forecast revisions. These findings inform investors regarding the extent to which they may effectively rely upon analysts’ target price forecasts after material negative accounting misstatements and contribute to our knowledge of the value relevance of historical accounting and future earnings expectations for sell-side analysts.
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    Donors, distance, and the influence of accounting information
    (University of Alabama Libraries, 2020) Mercado, Julie; Parsons, Linda M.; University of Alabama Tuscaloosa
    In this study, I test a practical intervention to a problematic occurrence in nonprofit organizations: the overemphasis of spending ratios, specifically the program ratio, when assessing nonprofit performance. Prior research indicates that donors place undue focus on not-for-profit (NFP) program ratios, which can result in suboptimal giving decisions because these ratios provide an incomplete measure of performance. To address this, regulators recommend that organizations provide explanatory information to aid donors in better understanding NFP performance. I present theoretical and experimental evidence to show that donations to an NFP with a low program ratio are higher if explanatory information is provided, and this effect is greater when the presentation of that information (concrete vs. abstract) is congruent with a donor’s distance (near vs. far). Additionally, I find that donors whose distance is far from an organization are more likely to be influenced by favorable desirability (goal-related) information than those whose distance is near. If donors are provided with unfavorable desirability information, they tend not to further penalize an NFP with a low program ratio if they are also provided with favorable feasibility (process-related) information (e.g., explanatory information). This study provides important insights regarding the communication of accounting information. Results suggest that the provision of explanatory information causes the negative impact of a low program ratio to decline, resulting in an increased willingness to donate to an NFP, especially when the explanatory information is congruent with a donor’s distance. While explanatory information does not change performance, it – along with favorable desirability information – can aid donors in better understanding the purpose and strategies of NFP spending.
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    Three papers on non-gaap earnings
    (University of Alabama Libraries, 2018) McCoy, Christopher; Taylor, Gary; University of Alabama Tuscaloosa
    This dissertation explores non-GAAP earnings reporting. The first paper investigates the role that a lack of analyst following plays in the value relevance of non-GAAP earnings. I find that firms without analyst following have non-GAAP earnings that are less value relevant than GAAP. I also find evidence of opportunism in non-GAAP reporting for firms without analysts. The second paper examines the role of opportunism in non-GAAP market reactions. We find that firms with opportunistic non-GAAP reporting avoid the market penalty for missing forecasts. However, these same firms have future performance that is more consistent with firms that miss current forecasts. This finding suggests that investors are misled by opportunism in the short-run. The third paper looks into the role that consistent or inconsistent opportunism has in market reactions to non-GAAP earnings. We provide evidence that suggests that the market incentivizes ceasing opportunistic non-GAAP earnings. We also find that individual investors have a preference for consistently non-opportunistic non-GAAP reporting. The findings of this dissertation are relevant to investors, regulator, and researchers.
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    Cowboys, fathers, and everyone else: examining race in the walking dead through the myths of white masculinity
    (University of Alabama Libraries, 2017) Pressnell, Levi Addison; Bennett, Beth Susan; University of Alabama Tuscaloosa
    This study offers an analysis of three different series within The Walking Dead franchise: the comics, the AMC television series, and Telltale’s video games. The critical and commercial popularity of all three make them particularly worthy of study, and the franchise’s focus on characters invites a rhetorical study based on mythic figures across these three different media forms. While critical comparisons have been made either between the comics and the television series or between the comics and Telltale’s video game series, a comprehensive look at the series across all three media has so far escaped critical attention. The study explores characters in The Walking Dead media primarily through two dominant myths of White masculinity: the cowboy with his rugged individualism and the good patriarch with his care for his family. These mythic figures shift across different media, finding incarnations in many different characters and often revealing opposing perspectives that cannot find representation within the myths themselves. Critical analysis reveals the emergence of a general trend among the three series, one of increasing critique and eventual rejection of these myths of White masculinity. Alongside this trend, in character development, analysis across the three media forms suggests that increased interactivity, as seen in the video game franchise, encourages consumers to respond more directly to the myths on display. This factor was especially evident in confronting the racism that was directed at the protagonist of the first game, Lee Everett. Suggestions for future studies include how to adapt other pop culture franchises across different media, the expansion of interactivity with television viewing and second-screen services, and the continued evolution of zombie media.
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    Visions of after the end: a history and theory of the post-apocalyptic genre in literature and film
    (University of Alabama Libraries, 2017) Stifflemire, Brett Samuel; Butler, Jeremy G.; University of Alabama Tuscaloosa
    Textual genre criticism and close readings of novels and films reveal that, in addition to chronicling catastrophes’ aftermaths, the post-apocalyptic genre envisions a future world in which traditional apocalyptic ideology is inadequate and unsatisfactory. While the full apocalyptic trajectory traditionally includes an end met by a new beginning, moments of cultural crisis have questioned the efficacy of apocalyptic metanarratives, allowing for a divergent, post-apocalyptic imagination that has been reflected in various fictional forms. The post-apocalyptic genre imagines a post-cataclysmic world cobbled together from the remnants of our world and invites complicated participation as readers and viewers engage with a world that resembles our own yet is bereft of our world’s meaning-making structures. The cultural history of the genre is traced through early nineteenth-century concerns about plagues and revolutions; fin-de-siècle anxieties and the devastation of the First World War; the post-apocalyptic turn in the cultural imagination following the Second World War, the atomic bombs, and the Holocaust; the Cold War and societal tensions of the 1960s and 1970s; late twentieth-century nationalism and relaxation of Cold War tension; and renewed interest in post-apocalypticism following the terrorist attacks on September 11, 2001. Textual analysis reveals that the genre is particularly interested in formal experimentation and other postmodernist ideas, carnivalesque transgression, and concerns about survivorship and community. The mobilization of these themes is examined in case studies of the novella “A Boy and His Dog,” the novels The Quiet Earth and The Road, and the films Idaho Transfer, Night of the Comet, and Mad Max: Fury Road.
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    Censorship in public libraries: an analysis using gatekeeping theory
    (University of Alabama Libraries, 2017) Steele, Jennifer Elaine; Bonnici, Laurie J.; University of Alabama Tuscaloosa
    One pressing issue in libraries today is the censorship of information. This study applies Kurt Lewin's gatekeeping theory to examine the decision-makers as well as the different pressures and constraints that are at issue in decisions regarding challenges and censorship attempts that occur in public libraries. Through an in-depth case study of two federal court cases dealing with challenges and censorship attempts that occurred in public libraries, this study seeks to identify the gatekeeping structures present within public libraries, specifically those that contribute to conditions that encourage librarians to censor. A qualitative content analysis of court documents as well as newspaper articles covering the court cases being analyzed, followed by a series of interviews with individuals involved in the cases, seek to reveal in more complexity the gatekeeping structure present in public libraries. Knowing who the decision-makers, or gatekeepers, are in the decision-making process, whether it is library boards, library directors, or public officials, is crucial to the understanding of censorship in public libraries. Central to the study is the phenomenon of librarians themselves engaging in acts of censorship. Factors such as power and authority can lead librarians to engage in censorship activities as a reaction to instructions from their governing bodies. Without a clear understanding of the function of gates and gatekeepers in the decision-making process, libraries may allow unintended censorship of ideas and information to persist. This study seeks to inform librarians and information professionals to become better equipped to support the fight against censorship.
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    Understanding organization environmental sustainability messages on social media and testing the communication effectiveness
    (University of Alabama Libraries, 2017) Shin, Sumin; Ki, Eyun-Jung; University of Alabama Tuscaloosa
    Organizations have communicated about their environmental protection activities with publics via various media channels. As social media have become popular in the past decade, organizations have begun to communicate about environmental issues using these channels. This dissertation aims to understand the current nature of organizations’ sustainability messages on social media and to test the effects of the messages on audiences’ attitude, belief, and behavioral intention. To achieve the purposes of the study, three series of studies were conducted. Study 1 analyzed the green message content of for-profit and nonprofit organizations on a popular social media platform, Twitter. Study 2 used attribution theory to examine how the substantiation and specificity of green messages influence receivers’ attribution and attributional processes. Using a scenario of green messages on Twitter and Facebook, Study 3 investigated the effects of message substantiation and specificity on affective and cognitive responses (attitudes toward message and organization, credibility of both the message and organization, and perceived organizational green image) and the effects of the affective and cognitive responses on green behavioral intentions (intention to engage in the green campaign and intention to purchase the organization’s green product) and social media reaction intentions toward the green message (like, share, and comment intention). The results showed that associative and vague messages were more prevalent than substantive and specific messages on Twitter. In particular, for-profits’ messages tended to be substantive and specific, while nonprofits’ messages were generally associative and vague. For for-profit organizations, messages about environmental facts led to more likes, shares, and comments than other green message orientations. Furthermore, a specific message increased perceived intrinsic motivation and decreased perceived extrinsic motivation of the organizational environmental communication. The perceived intrinsic motivation was positively and the perceived extrinsic motivation was negatively associated with message attitude, organization attitude, message credibility, organization credibility, and green image. The results of this study attest that substantive and specific messages positively drove the affective and cognitive responses which positively predicted green behavioral intentions and social media reaction intentions.
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    Luxury fashion brands: how brand personality, mediated by perceived brand luxury, and moderated by brand experience, contributes to brand equity
    (University of Alabama Libraries, 2017) Jia, Han; Zhou, Shuhua; University of Alabama Tuscaloosa
    The purpose of this dissertation was to gain a better understanding of brand personality, perceived brand luxury, and brand experience, and how these variables impact brand equity for luxury fashion brands. The study developed a valid instrument for measuring luxury fashion brand personality and provided a relationship model to explain the relationship between brand personality and brand equity for the luxury fashion brand. To achieve those goals, an online survey was conducted in the U.S. in December 2016. A total of 707 people participated in the survey, and 387 surveys were valid. Using exploratory factor analysis, we first identified that seven factors contributed to luxury brand personality, including superiority, excitement, aristocracy, classic, creativity, opulence, and ruggedness. As such, a seven-dimensional scale including these seven factors was developed to measure luxury brand fashion personality. Next, the relationship between variables of brand personality factors, perceived brand luxury, brand experience, and brand equity were analyzed. The results of the study showed that perceived brand luxury was a partial mediator for brand personality and brand equity, and brand experience was a moderator for perceived brand luxury and brand equity. Brand personality congruity was also confirmed to be a mediator for brand personality for the luxury fashion brand. This study developed a brand personality model for the luxury fashion brand, which can be used for luxury brand practitioners to measure and manage their brands’ personality. The results of this study indicate the effect of brand personality on consumer-based brand equity in the context of the luxury fashion brand. Moreover, the results indicate perceived brand luxury and brand experience have some influence on brand equity. These findings provide practitioners with a general picture of brand personality performance of luxury fashion brands and help practitioners better understanding what personality dimensions they should strengthen for improving their brand equity in future business activities.
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    A global election: analyses of Chinese, Russian, and Saudi Arabian news coverage of the 2016 U.S. presidential election
    (University of Alabama Libraries, 2017) Stokes, Ethan Christopher; Gower, Karla K.; University of Alabama Tuscaloosa
    This dissertation was designed to investigate how state-owned news media outlets from China, Russia, and Saudi Arabia covered the 2016 U.S. presidential election. More specifically, this study includes analyses of Chinese, Russian, and Saudi Arabian news stories from four major events throughout the 2016 election campaign: 1) the national conventions for the Republican and Democratic parties, 2) the first presidential debate, 3) Election Day, and 4) Inauguration Day. Drawing from the global news flow theoretical framework, this study examined the extent to which media dependency was present among the international news coverage. Furthermore, drawing from the nation branding theoretical framework, this study assessed how these state-owned news outlets presented the U.S. nation brand to their audiences. Using a content analysis methodological approach, the researcher coded 365 news stories into various quantitative coding categories and qualitative themes. The overall results show that the Chinese and Saudi Arabian sources favored Hillary Clinton and the Democratic Party, while the Russian sources favored Donald Trump and the Republican Party. Additionally, the results show that these news outlets cited U.S. news sources more often than non-U.S. news sources. Moreover, the overall results indicate that these news outlets’ coverage of the 2016 U.S. presidential election presented the U.S. nation brand negatively, and indicate perceptions of “gray zones” between the U.S. and other nations. This study’s theoretical implications, practical implications, and avenues for future research are discussed at length.
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    A theory-centered model of debate assessment: the rhetorical judging paradigm
    (University of Alabama Libraries, 2017) Corbit, Ken W.; Bennett, Beth Susan; University of Alabama Tuscaloosa
    This study investigated collegiate debate and the ways in which it is judged. Debate has long been considered an academic process used to advance argumentation theory and critical thinking skills in its participants. However, over the last half-century, many scholars have determined that, as it is practiced, has become exclusionary to those outside of the debate community and no longer provides educational benefit (Guerin et al., 2005). A review of scholarship on the historical background of argumentation, rhetorical theory and collegiate debate over the last century, provides a foundation for examining extant debate judging paradigms and their impact on participant behavior. Specifically, the 2014 CEDA National Championship final round was used as a case study to confirm two problems discovered within the review of literature: the impact of shifting judging paradigms on competition and the dominance of gamesmanship. The case study revealed how the judging paradigms have a direct effect on the way competitors prepare for the round. In addition, the case study illustrated how feedback reinforced technical debate, jargon, spreading, and speed. Through synthesis of traditional rhetorical concepts, a new judging model was developed, the rhetorical judging paradigm (RJP), and was discussed as a tool for use in a debate round. Once the model was created, it was used to examine the 2014 CEDA National Championship round. This was done to show how the theory could positively impact the debate community. The primary conclusion of the study is that the RJP be applied more broadly and researched in a quantitative methodology.
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    Clicking and sharing health risk information on social media: how perception and emotion affect behavioral intentions
    (University of Alabama Libraries, 2017) Zhang, Xueying; Zhou, Shuhua; University of Alabama Tuscaloosa
    The dissemination of health risk information is a topic of key importance in health communication. With an explosion of information, health risk messages on social media need to elicit users’ intention to click and to forward to be useful. This study aimed to examine how fear appeal message and individual differences combined to drive users’ intentions to click and share health risk messages on Social Networking Sites (SNSs). Two experiments were conducted online to test the predictors of intentions to click and share respectively, with participants recruited from Mturk. The results suggested that (1) fear appeal message influenced intentions to click and share in a different way than the risk related perceptions did; (2) cognitive elaborations of the risk played a more important role in motivating click and share; (3) individual’s characteristics predicted the intentions to click and share significantly; (4) information processing styles moderated the influence of efficacy perception’s influence on intention to share and (5) the intention to follow the message significantly predicted intention to share. The theoretical and practical implications for health risk message design were discussed.
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    Is the character of SEC comment letters relevant to recipients?: empirical evidence of constraining allowance for doubtful accounts
    (University of Alabama Libraries, 2017) Rippy, Jordan; Stone, Mary S.; Buchheit, Steven R.; University of Alabama Tuscaloosa
    Prior research has provided mixed results regarding changes in firm behavior in response to comment letters from the Securities and Exchange Commission (SEC) (Johnston and Petacchi 2016; Kubick, Mayberry, Omer, and Lynch 2016; Robinson, Xue, and Yu 2011; Wang 2016). This study documents that comment letters come in two main categories: accounting-focused letters and disclosure-focused letters. I examine whether the character of comment letters (accounting versus disclosure) impacts a firm’s response to comment letters questioning the allowance for doubtful accounts (AFDA). I find that firms with abnormal accruals in the AFDA are more likely to receive an accounting-focused comment letter and these firms are also more likely to constrain AFDA-related earnings management behaviors in the period after comment letter resolution. Disclosure-focused comment letters exhibit no such patterns. The results of this study suggest (1) the lack of consistent findings in prior research may be partially attributable to homogenously classifying dissimilar comment letters and (2) the SEC filing review and comment letter process may be an effective tool in monitoring and constraining earnings management behaviors.
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    Is corporate social responsibility associated with perceived financial reporting credibility
    (University of Alabama Libraries, 2016) Bordere, Jasmine; Parsons, Linda M.; Taylor, Gary; University of Alabama Tuscaloosa
    I examine the association between corporate social responsibility (CSR) and the perceived credibility of corporate financial reporting. Using the analyst forecast dispersion and the earnings response coefficient as measures of perceived financial reporting credibility, I evaluate whether market participants (analysts and investors) perceive the financial reporting of socially responsible firms (CSR firms) to be of higher credibility than that of less socially responsible firms (non-CSR firms). First, I investigate the difference of the quarterly analyst forecast dispersion between CSR and non-CSR firms. Then, I separately examine the difference of the three-day window earnings response coefficient around quarterly earnings announcements between CSR firms and non-CSR firms under positive earnings surprises and negative earnings surprises. Results documented in this study indicate that market participants perceive financial reporting of CSR firms to be of higher credibility than that of non-CSR firms by placing a higher level of reliance on CSR firm-provided financial information, resulting in CSR firms having a lower analyst forecast dispersion and a higher earnings response coefficient when earnings surprises are positive. However, when earnings surprises are negative, since the financial reporting credibility is less questionable, the earnings response coefficient of CSR firms is not different from that of non-CSR firm. This study extends a stream of research that seeks to link CSR to firm performance/value by providing empirical evidence on how CSR is related to a firm’s stock price through its perceived financial reporting credibility. By separately examining positive and negative earnings surprises, I expect to provide possible explanations to the conflicting results documented in prior research. This study also extends our understanding of market reactions to firms being socially responsible from investors’ reactions to analysts’ reactions.
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    The effect of off-site audit work on the judgment quality and development of staff auditors
    (University of Alabama Libraries, 2016) Carrasco, Heather; Hatfield, Richard C.; University of Alabama Tuscaloosa
    This study experimentally examines the effects of recent increases in off-site audit work (e.g., task-specific experience and social environment) on the judgment quality and development of staff auditors. First, I examine how preparing testwork (i.e. task-specific experience) affects the subsequent performance of staff auditors’ workpaper review. Second, I consider how the physical presence or absence (i.e., social environment) of a high-ranking auditor affects the judgment quality of staff auditors. I provide evidence that staff auditors, who have the opportunity to prepare basic audit tasks prior to reviewing workpapers, identify more mechanical seeded errors than auditors who only review workpapers. Further, I find that the presence of a high-ranking auditor improves the performance of staff auditors in completing a subsequent workpaper review task, especially when the participants prepare testwork prior to reviewing workpapers. The results of this study highlight the practical implications of the current audit environment; as well as contributing to the emerging literature examining off-site audit work.
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    The delay in recognizing goodwill impairment: flawed audit methodology or insufficient effort
    (University of Alabama Libraries, 2016) Sorensen, Trevor; Lopez, Thomas J.; University of Alabama Tuscaloosa
    In this study I examine whether the delay in recognizing goodwill impairment is associated with an audit process failure. Prior research finds that economic indicators of goodwill impairment precede the actual recognition of impairment by at least three years (Hayn and Hughes, 2006; Li et al., 2011; Ramanna and Watts, 2012; Li and Sloan, 2014). Griffith et al. (2015) suggest that auditors’ inability to properly audit fair value estimates (i.e., an audit process failure) is potentially the result of the auditor using a flawed methodology and/or an overreliance on management assertions (i.e., inadequate effort). I explore which of these is main explanation for the delay in recognizing goodwill impairment. Using a logistic model, I identify unrecognized goodwill impairment companies (UGI) and match them with companies that had no unrecognized goodwill impairment (NGI) and companies that recognized goodwill impairment (IMP). Utilizing fees as a proxy for audit effort, I provide evidence that auditors put forth more effort to test UGI companies for impairment when compared to NGI companies. This is consistent with auditors putting forth more effort when indicators of impairment are present. On the other hand, I find that auditors put forth the same level of effort for UGI and IMP companies. This is inconsistent with the expectation of increased effort due to the potential for material misstatement and increase litigation risk to the auditor since no impairment is recognized by UGI companies. Combined with Griffith et al., I infer that both a flawed methodology and insufficient audit effort contribute to the delay in recognizing goodwill impairment.
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    The lingering effects of multi-tasking on auditors' judgment quality
    (University of Alabama Libraries, 2015) Mullis, Curtis; Hatfield, Richard C.; University of Alabama Tuscaloosa
    Auditors must frequently multi-task in order to complete audit tasks efficiently, but the potential negative impact of multi-tasking on auditors' judgment quality is poorly understood. In this study, I address this issue and provide evidence that multi-tasking depletes auditors' ability to maintain cognitive focus, resulting in an impaired ability to identify seeded errors, particularly conceptual errors, during a subsequent workpaper review task. Importantly, this negative consequence is mitigated when auditors are exposed to an intervention based on a theoretical countermeasure (positive affect) designed to replenish decision makers' self-control resources. Given that multi-tasking is a pervasive feature of the current audit environment, and that depletion is expected to influence other complex audit tasks, these findings have direct implications for audit practice. Beyond identifying multi-tasking as a cause of impaired performance in auditing, this study's results provide initial evidence that such negative effects can be mitigated, resulting in improved judgment quality and, by extension, improved financial statement quality.
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    How and why does real earnings management affect auditors' evaluations of management's estimates?
    (University of Alabama Libraries, 2015) Commerford, Benjamin P.; Hatfield, Richard C.; Houston, Richard W.; University of Alabama Tuscaloosa
    Prior research often asserts that, because real earnings management (REM) does not violate Generally Accepted Accounting Principles (GAAP), it is not likely to draw auditor scrutiny. However, informed by Correspondent Inference Theory, I predict and find that observing REM can affect auditors' decisions in audit areas unrelated to REM. This study reports the results of an experiment in which auditors evaluate quantitatively immaterial audit differences arising from management's subjective estimates. I manipulate the presence versus absence of REM, and whether or not the audit difference affects the client's ability to meet an earnings target (i.e., qualitative materiality). Results indicate that, when a quantitatively immaterial audit difference affects the client's ability to meet an earnings target, auditors have a higher propensity to propose an adjustment. Further, regardless of whether or not the audit difference is qualitatively material, auditors are more likely to constrain management's estimates in the presence of REM. Finally, consistent with the notion of a cascading effect of dispositional inferences, I find that auditors' perceptions regarding the aggressiveness of management's disposition mediate the effect of REM on auditors' adjustment decisions. Additional analyses indicate that, when the audit difference is qualitatively material or when REM is present (or both) auditors have a heightened concern that management's estimates are biased. This study contributes to the literature by demonstrating that auditors' altered perceptions, stemming from observing REM, can affect their treatment of audit differences and, ultimately, impact the financial statements.