Behavioral Research in Accounting
Published annually by the Accounting, Behavior and Organizations Section
of the AAA

1994, Volume 6 Supplement

 

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FOREWORD

This special edition of Behavioral Research in Accounting is based on research papers which were presented at the 1994 research conference of the Accounting Behavior and Organizations (ABO) Interest Section entitled Frontiers of Behavioral Research. The research conference was intended to provide a venue for behavioral research broadly defined-to be presented and discussed by both academics and practitioners interested in behavioral accounting research. As such, the conference contained papers which crossed disciplinary boundaries to examine theories and apply methodologies from other disciplines to accounting problems. Research papers included those which reflected theoretical developments and those which presented empirical research findings.

The papers published in this issue are a subset of those presented at the Conference. They are representative of some of the most recent behavioral research in several disciplines. Before being accepted for publication, the papers were subjected to additional review processes (beyond that used in accepting papers for the conference). Selection for the journal was based on quality, originality, and the perceived contribution to behavioral accounting.

In addition to the research papers, this edition of Behavioral Research in Accounting also contains the comments of Dennis R. Beresford, Chairman of the Financial Accounting Standards Board (FASB) as well as comments on each paper by conference discussants. In particular, the reader should note that Mr. Beresford requests academic researchers to consider how research could be of assistance to the standard-setting process used by the FASB. The ABO section has developed an ongoing vehicle for communicating both research findings and standard setters' needs, this being the first step in the process. We believe that behavioral researchers are in a unique position to bridge the gap between the practitioner's need for answers to realistic and pragmatic problems and the academician's expertise.

As with all conferences and special issues, the Frontiers of Behavioral Research conference and this special issue of Behavioral Research in Accounting are the results of many people who selflessly contributed their time, talent, and energy. In particular, we would like to acknowledge the efforts of the conference committee members: Jeffrey Shields and Larry Killough; reviewers, discussants, moderators and participants of the conference; and the support provided by the executive officers of the ABO section led by Section President Don W. Finn.

Gail B. Wright, Co-editor
Bryant College
Paul Munter, Co-editor
University of Miami 


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An Investigation of Obedience Pressure Effects on Auditors' Judgments

F. Todd DeZoort and Alan T. Lord
ABSTRACT

Auditors are subject to a variety of pressures that can affect their judgments. This paper introduces the obedience pressure construct to the accounting literature by examining auditors' susceptibilities to superiors' inappropriate instructions. Milgram's (1974) obedience to authority theory is used as a basis to develop a normative influence perspective of obedience pressure. One hundred forty-six auditors from an international accounting firm were assigned randomly to one of three obedience pressure treatment groups representing either no pressure, pressure from a firm manager or pressure from a firm partner. Three vignettes were used to elicit likelihood judgments about actions when under the various pressure treatments. The auditors also completed the General Attitudes Toward Institutional Authority Scale (GAIAS) (Rigby 1982), a scale used to measure attitudes hypothesized to affect judgments.

The results indicate that auditors are susceptible to obedience pressure. Auditors who received inappropriate instructions from either a manager or partner were significantly more likely to violate professional norms or standards than auditors under no pressure. In addition, pressure from a partner had a significantly greater effect on judgments than pressure from a manager in two of the three vignettes. Individual attitudes toward authority, as measured by the GAIAS, did not have a significant effect on auditors' judgments. Overall, the results suggest that auditors may have a tendency to compromise their professionalism when faced with inappropriate instructions from superiors. 


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An Investigation of Obedience Pressure Effects on Auditors' Judgments

Ira Solomon
DeZoort and Lord (hereafter, D & L) have targeted for investigation a very important issue-the extent to which pressure to obey superior members of the audit team may result in compromised audit effectiveness or efficiency. In addition, D & L generally used good practices in designing their experimental instruments and in writing a relatively clear and to-the-point paper. My critical commentary on this paper is organized around three themes: (1) conceptual issues, (2) method (experimental [i.e., response scale, task and design]) issues and (3) results interpretation issues. 
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The Structure of Meaning in Accounting: A Cross-Cultural Experiment

Nancy A. Bagranoff, Keith A. Houghton and Jane Hronsky
ABSTRACT

Accounting is a communication process. Therefore, the measurement of meaning is of fundamental importance in accounting. Several recent studies have measured meaning in accounting and have examined the cognitive structure of meaning from various perspectives. No published research to date, however, has measured connotative meaning across different cultures or national boundaries. The proliferation of multinational enterprises and economic globalization call for greater worldwide standards of accounting. However, mandated uniformity in accounting principles does not ensure consistent understanding and application of the rules. Cross-cultural differences may affect the meaning of, and hence the application of, accounting principles.

This research investigates shared meaning among North American and Australian auditors for one important accounting concept, "extraordinary items.' Significant differences in the cognitive structure within which meaning is held emerged for the two sets of auditors. Results also showed subtle differences in classification decisions made by the two subject groups. Thus, results indicate that cross-cultural differences are likely to influence the meaning of accounting concepts and that future research in this area is warranted.


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The Structure of Meaning in Accounting: A Cross-Cultural Experiment

James A. Schweikart
I am pleased to have the opportunity to comment on the work of Nancy Bagranoff, Keith Houghton, and Jane Hronsky, as this type of research is extremely relevant today and is quite well done. Even so, cross-cultural research is a difficult endeavor and is very risky. As such, it allows one to make constructive comments for both this work and for future attempts which are very much needed.

OVERVIEW

The purpose of this article is to assess any difference in cognitive and connotative meaning of extraordinary items between the U.S. and Australia. The importance of this is in the gaining of understanding of how information may be interpreted differently across nations for investment decision making. That is, the researchers wish to ascertain if accounting terms such as extraordinary items carry different meanings in two cultures and, accordingly, invite different interpretations of financial events.

The theoretical structure of this paper lies in cognitive theory where any assessed differences would be attributed to culture, although the authors admit that there are environmental constraints which affect the decision process. The experimental approach rather than the survey approach was used to lessen the impact of those other external variables. Providing the Australian and U.S. definitions of extraordinary items and requiring both groups to use them is another means of controlling national environmental factors. Still, complete control or assessment of interaction effects was not accomplished.


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The Functionality of Decision Heuristics: Reliance on Prior Audit Adjustments in Evidential Planning

Jean C. Bedard and Arnold M. Wright
ABSTRACT

Prior behavioral research has documented the widespread use of heuristics and biases, yet few studies have examined whether the use of such biases is dysfunctional in business decisions. This study examines the use of an heuristic suggested from archival studies in auditing: reliance on prior errors in evidential planning. This heuristic is akin to 'availability" in the psychological literature. The study also focuses on concurrent tasks and explores the role of domain-specific experience in the use of decision heuristics.

The particular heuristic studied here is suggested by archival studies of audit workpapers, which have not shown a clear pattern of responsiveness in audit planning to the level of and changes in client risk that auditing standards prescribe. However, positive associations between prior adjusting entries (AJEs) in an account and subsequent increases in testing have been found. These findings are of concern because they may indicate an audit planning heuristic that emphasizes use of past client problems as an easily available indicator of future problems, instead of full integration of current risk factors.

To investigate auditor evidential planning strategies in response to both current risk factors and prior audit adjustments, this study examines planning judgments and decisions of auditors at various levels of domain-specific experience. A case was developed, based on a situation from practice, in which an income-increasing error was seeded. The presence of a prior AJE correcting a different error (not increasing income) was manipulated. Also manipulated were two current risk factors (a management compensation plan with income targets and complexity of the cost accounting system) that affect client incentives and ability to bias the financial status of the business. Practicing auditors judged the likelihood of material error (LME) and planned an audit program.

The study's results showed that the relative importance of the prior NE heuristic and the current risk factors on assessments of LME was contingent on the level of domain-specific experience. Particularly, auditors with less experience were more likely to view the prior AJE as contributing to audit risk, while those with more experience were more likely to view the management compensation plan as contributory. Audit plan effectiveness in detecting the seeded error was strongly associated with domain-specific experience. LME judgments were also associated with effectiveness, but less strongly. Thus, archival results concerning auditor concentration on prior errors were corroborated. However, the effectiveness benchmark (assessing the ability ofthe program to address the seeded error) incorporated into the study's design enabled support for the conclusion that the level of domain-specific experience and the auditor's risk assessment may mitigate concerns about possible negative effects on audit quality from attention to prior errors. These findings underscore the insights gained by viewing the audit as a multiple stage process and through concurrent analysis of both risk assessment and evidential planning decisions. 


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The Functionality of Decision Heuristics: Reliance on Prior Audit Adjustments in Evidential Planning

Joseph J. Schultz, Jr.
It is pleasure to comment on this study by Jean Bedard and Arnie Wright. I believe they have provided another valuable contribution to our literature. They have modified the paper to reflect many of my comments raised at the conference. Consequently, my remaining comments primarily relate to issues that either cannot be modified or that I failed to raise (at least adequately) at the conference. I Implicit in these comments is our need to continue to move forward to understand the complexity involved in the audit judgment process. 
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The Influence of Tax Law Requirements and Organization of Client Facts on Professional Judgment

Kathy Krawczyk
ABSTRACT

Psychology literature suggests that the way in which information is presented to individuals can affect their decision making process. This study uses two experiments to investigate the extent to which the form of written tax law (subjective or objective) and the organization of client facts (natural order or random) define the amount and type of information (cues) that professionals select, weigh, and use in decision making. The cues selected, weighted and combined in decision making were measured by having the professional free recall information, and provide a decision along with its justification.

The results indicate that the form of law and the organization of facts interactively influenced the number of cues selected for use in decision making. Form of law also affected which specific cues were selected and which ones were highly weighted in decision making along with influencing the tax decision made. Experience differences between professionals in the two experiments help explain the inconsistencies in results. 


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The Influence of Tax Law Requirements and Organization of Client Facts on Professional Judgment

Brian C. Spilker
Krawczyk's paper provides insights into how the form of tax law and the organization of facts separately and jointly influence the cues professionals attend to in tax decision making. In so doing, the article addresses issues of importance to accounting practice as well as to the accounting literature. The experimental design includes a creative application of ideas from the psychology literature to a common tax setting. To my knowledge, Krawczyk's study is the first to empirically explore issues relating to the distinction between objective and subjective tax law.

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A Framework for Investigating Involvement Strategies in Accounting Information Systems Development

James E. Hunton and Kenneth H. Price
ABSTRACT

This paper presents a framework and model for examining the most efficacious means of maximizing the inherent potential in the relationship between accounting information system users and developers. In this paper we review and integrate the theories and findings from information systems, participation and procedural justice literature to develop a framework for examining various involvement strategies when designing, modifying, purchasing or implementing an accounting information system. We present an integrative model of the involvement process identifying critical independent, moderating, intervening and outcome variables. Research questions are presented along with an example of how one might empirically test the model. 


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A Framework for Investigating Involvement Strategies in Accounting Information Systems Development

Nancy A. Bagranoff
SUMMARY

Accounting information systems (AIS), as a research area, has an identity problem. Several accounting researchers have surveyed literature and sought to develop models or frameworks for studies in this field. All seem to concur that behavioral research in AIS promises to be a rich area for study. Amer et al. (1987), for example, categorized existing computer information systems research in accounting and auditing in three groups: conceptual considerations in accounting systems design, EDP auditing techniques, and computerized decision support systems. They concluded that there is a lack of behavioral research related to AIS, but that this represents great potential for growth as an area of study. Reneau and Grabski (1987), developed a prescriptive model for information systems research as a basis for identifying the particular domain of AIS research. They note that whereas the majority of behavioral decision research has looked at the use of AIS and decision making, an area also of interest involves interactions with the development process. To encourage AIS researchers to investigate behavioral issues, Sutton and Arnold (1994), recently proposed a framework for behavioral research in AIS. This framework calls for research in several areas, which includes the systems development process.

Hunton and Price's paper is a good example of behavioral research in AIS. Certainly, the systems development process has been a rich area of study for information systems researchers; involvement and participation in that process is a good area for study by behavioralists. Much of the behavioral-related AIS research to date has focused on either auditing or expert systems. It is hoped that the work of Hunton and Price will encourage others to examine the unique role of accountants in systems development. 


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Beyond Economic Man: Lessons for Behavioral Research in Accounting

Sara Ann Reiter
ABSTRACT

Feminist critiques of the practice of science question the assumptions underlying theories and research practices used in disciplines. Feminist economic theorists have criticized the practices of science in economics, the foundations of neoclassical economic theory (on which financial economic theory is based), and the assumptions underlying economic decision theory models (Coughlin 1993). These critiques are potentially useful to those areas of behavioral research in accounting which are based on economic theory. Much of the behavioral work in judgment and decision making uses models derived from economic decision models and behavioral research in financial reporting relies on financial economic theory. Feminist critiques are helpful in illustrating problems with the role of individual behavior in economic theory and the bias and underspecification of economic models as applied to accounting phenomena. Alternative theoretical and methodological approaches that are more attuned to a balanced view of individual, firm, and market behavior are proposed. 


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Beyond Economic Man: Lessons for Behavioral Research In Accounting

Joni J.Young
I believe this paper provides a useful introduction to the possibilities and potentialities for feminist theories to improve our understanding of accounting practices and phenomena. While the paper critiques existing accounting and economic research, it also provides suggestions for both new research directions and new research attitudes.

I agree with Sara that the introduction of feminist theories into accounting research has the potential to further our understandings) of both accounting practices and accounting research. The comments which I prepared for the conference were intended to strengthen Sara's paper in the hopes that it would reach a broader audience of readers (both women and men) and that these readers would pause to consider the ways in which feminist theory and in particular feminist standpoint theory may enrich and strengthen their research and, perhaps, even alter their perspectives on what accounting does as well as what accounting should do. The comments in this written discussion are also intended to emphasize the importance of feminist perspectives. Given this intention, I emphasize here the points in the paper which I believe are important and argue with these points rather than against the insights contained in Sara's paper.

For whatever reason, feminism is a frightening and/or off-putting word for many. Feminism is a word (and practice) that causes at least some individuals to throw up their hands and declare that politics (i.e., feminism) has no role in scientific endeavors. In an effort to counter these criticisms, I believe the paper has now been strengthened by an explicit discussion in the introduction of what the paper is not and I wish to re-emphasize and perhaps elaborate on these points. 


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A Request for More Research to Support Financial Accounting Standard-Setting AAA-Accounting, Behavior and Organizations Section

Dennis R. Beresford
INTRODUCTION

The purpose of this paper is to discuss the potential contribution of ex ante research to the accounting standard-setting process. The paper describes the use of academic research in the standard-setting process, with an emphasis on the relevance of ex ante research. It highlights extant ways for researchers to identify topics of interest to standard setters and includes suggestions for additional means of identification. The paper also discusses current topics of interest to the FASB and ends with a specific request for research papers related to those topics. 


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The Role of Behavioral Accounting Research in Financial Accounting Standard Setting

Laureen A. Maines
This essay addresses the issue of how behavioral accountants can contribute to ex ante financial accounting policy research. In the essay, I discuss the comparative advantages of behavioral accounting researchers, specific ways in which behavioral accounting research can contribute to financial accounting standard setting, concerns about and potential obstacles to this research, and ways to improve communication between behavioral researchers and the Financial Accounting Standards Board (FASB). Although I have attempted to be broad in my definition of behavioral research, my comments are naturally colored by my training and own research, which examines individuals' judgments. and decisions using a cognitive psychology framework and experimental methodology.
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Factors Limiting the Role of Behavioral Research in Standard Setting

A. Rashad Abdel-khalik
I join many researchers to endorse Dennis Beresford's call for research to assist in setting accounting standards. Indeed there are those who believe that behavioral research offers the best potential for generating ex ante evidence on matters under consideration by standard setting agencies. Although I share some of that optimism, I would like to discuss some issues that could seriously limit the effectiveness of behavioral research in achieving the intended goals. These issues relate to the use of information and to institutional features of the system in which financial reporting exists. 
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