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Have You Seen...? Given that this is the last Have You Seen column that we will compile, we would like to take the opportunity to thank Peter DiCarlo and Jen Gregorski for their invaluable assistance over the past three years. Greg Trompeter and Tim Pearson “An Examination of Moral Development within Public Accounting by Gender, Staff Level, and Firm,” by R. A. Bernardi and D. F. Arnold, Contemporary Accounting Research (Vol. 14, Number 4, 1997): 653–668. This study extends prior research on the average level of moral development in public accounting by examining five large accounting firms and multiple staff levels. The research highlights the need to include auditors from several firms in research designs, provides evidence of differences in moral development among public accounting firms, and profiles the profession’s average level of moral development for three levels. The data are from 494 managers and seniors from five Big 6 firms. Using the defining Issues Test (Rest 1979a) to measure moral development, several results were noted. First, the results indicate a difference in the average level of moral development among firms, suggesting that use of subjects from only one firm inhibits the generalizability of findings regarding moral development. Second, female managers are at a significantly higher average level of moral development than male managers. The data suggest that a greater percentage of high-moral-development males and low-moral-development females are leaving public accounting than their respective opposites. These results indicate that the profession has retained, through advancement, males who are potentially less sensitive to the ethical implications of various issues. “A Bayesian Analysis of Cost-Effectiveness of Auditing for Small Businesses,” by A. V. Deshmukh, P. H. Siegel, and K. E. Karim, Advances in Accounting (Vol. 15, 1997): 265–277. This paper investigates the effect of the responsibility of the auditor to detect management fraud and the reliability of the present audit technology on the cost-effectiveness of auditing and accessibility of audit services to small businesses. By applying the Bayesian framework, this paper demonstrates that due to the low base rates of management fraud, detection of management fraud requires extremely reliable audit technology. This condition provides a plausible explanation for the following phenomena: (1) the existence of audit failure in the presence of management fraud; (2) the increasing reluctance of firms to undertake “risky” audits, making it difficult for small businesses to obtain audit services; and (3) the increasing client concentration in auditing to spread the audit risk resulting in an increased cost of auditing small businesses. “Determinants of the Justifiability of Performance in Ill-Structured Audit Tasks,” by J. Kennedy, D. N. Kleinmuntz, and M. E. Peecher, Journal of Accounting Research (Vol. 35, Supplement, 1997): 105–123. This paper examines determinants of justifiability of performance in ill-structured audit tasks. Justifiability is the extent to which task performance can be defended. An ill-structured audit task is a nonroutine task that lacks definitive applicable authoritative guidance, has multiple courses of action, and requires the auditor to exercise significant judgment. In the experiment, auditors with varying experience levels assessed performance justifiability for scenarios in which an engagement partner evaluated an aggressive accounting treatment favored by a high business-risk client. The authors manipulated both the level of authoritative guidance presented and whether the engagement partner’s preliminary decision (prior to consultation) was to allow or disallow the aggressive accounting treatment. The authors found that when participants were provided with less authoritative guidance, justifiability depended primarily on the consultation process; in contrast, when participants were given more authoritative guidance, justifiability depended on both the decision and consultation. Regardless of the level of authoritative guidance, justifiability was greatest when the engagement partner and the consultant agreed, and was enhanced when the engagement partner followed the consultant’s advice (regardless of its nature). However, seeking advice but not following it was regarded as more justifiable than not seeking advice in the first place, suggesting consultation is the key to establishing justifiability. “Accounting Consultation Units: An Organizational Memory Analysis,” by S. Salterio and R. Denham, Contemporary Accounting Research (Vol. 14, Number 4, 1997): 669–691. In this paper, the authors report the results of research that examines the role of accounting consultation units in public accounting firms. They describe the five largest accounting consultation units in Canada. The accounting consultation units are then examined through the lens of organizational memory theory. The authors find differences among the accounting consultation units in their ability to act as a source of organizational memory for their firms. These differences include the following: the amount of resources devoted to the consultation function, the structure of the units, the mandate received by the unit from the firm, and the availability and amount of documentation about previous consultations. These differences suggest that firms’ accounting consultation units differ in their ability to provide technical accounting advice. This variability may affect the actual or perceived quality of such advice to both clients and external regulators. In addition, this paper introduces organizational memory theory to the accounting literature. “The Effects of SAS No. 82 on Auditors’ Attention to Fraud Risk Factors and Audit Planning Decisions,” by M. F. Zimbelman, Journal of Accounting Research (Vol. 35, Supplement, 1997): 75–97. This study investigates whether the Auditing Standards Board’s Statement on Auditing Standards No. 82 requiring auditors to separately assess the risk of fraud will lead auditors to spend more time reading fraud cues and design audit plans that are more sensitive to fraud risk. Auditors are currently required to assess misstatement risk without documenting whether an expected misstatement is intentional or unintentional (holistic risk assessments). The author predicts that separately assessing the risk of intentional and unintentional misstatements will lead auditors to spend more time attending to fraud cues. In turn, the information auditors gain by allocating more attention to fraud cues is expected to lead them to develop audit plans that are more likely to vary with fraud risk when compared to plans developed by auditors who make holistic risk assessments. The experiment involving 108 practicing auditors from two Big 6 firms required them to document risk assessments and audit planning judgments. The results provide evidence that separately assessing fraud risk (as required by SAS No. 82) will influence auditors’ attention to fraud cues and audit planning decisions. Specifically, SAS No. 82 can be expected to direct auditors’ attention to fraud cues and lead to overall increases in budgeted hours. However, the results suggest that the nature of audit plans may not be affected. Keeping the Legacy Alive: Articles and Papers, 1979–1997, by Robert Mednick, Andersen Worldwide SC (1998). For most of the past 25 years Bob Mednick has been involved in professional policy making at Arthur Andersen. For the past 16 years he has been chairman of the policy group and currently holds the title of Managing Partner–Professional and Regulatory Matters. He will retire on August 31, 1998. Throughout his career, Mednick has been at the forefront of debate on financial accounting and reporting issues. In his role with Arthur Andersen and/or as a member or chair of several influential AICPA committees, he has given hundreds of speeches and, quoting from Emerson’s Professional Services Review, is possibly the “most published practicing CPA in America.” This book contains reprints of 19 articles and papers that Mednick has written over the past 20 years. Throughout these papers, he regularly addresses the five following basic themes: (1) expansion of the traditional attest function into new attest and assurance services, (2) reform of accountant’s legal liability, (3) development of a new approach to establishing standards of auditor independence, (4) updating the licensure and regulation of the profession for the 21st century, (5) transformation of today’s CPA into the premier information professional of the 21st century. This book is a thoughtful read for students and professors alike as it contains the vision of one of the profession’s leading thinkers of the past 20 years. |