"Disclosure Policy Choices of U.K. Firms Receiving Modified Audit Reports," by C. A. Frost, Journal of Accounting and Economics (Vol. 23, Number 2, 1997): 163–187.
This research examines discretionary disclosures and stock price effects for 81 U.K. firms that received first-time modified audit reports during 1982–1990. Results indicate that these firms’ managers are forthcoming about adverse developments and appear to perceive the advantages of withholding negative news to be minimal. However, managers of many of the 58 stressed sample firms make disclosures about expected future performance that are overly optimistic relative to financial outcomes. Stock market participants discount these stressed firms’ positive tone disclosures. Evidence in this study confirms that there is a strong incentive problem with voluntary disclosure.

"Projecting Sample Misstatements to Audit Populations: Theoretical, Professional, and Empirical Considerations," by S. Wheeler, R. Dusenbury and J. Reimers, Decision Sciences (Vol. 28, Number 2, 1997): 261–278.
This paper examines the auditing decision to isolate or project errors found in sampling an audit population. The authors extend this research by using the professional auditing standards as a backdrop for the study of both theoretical and practical aspects of the projection-isolation decision. They show that a biased estimator may be more precise than an unbiased estimator under certain assumptions about sample sizes and the frequencies of errors in accounting populations. Using simulation, conditions are specified under which a biased estimator is more precise than an unbiased one. The authors show that auditors rely on containment information when choosing to project and use verbal reports to develop a description of auditors’ strategies for using containment information. They conclude that, under specific conditions, isolation of sample misstatements is appropriate.

"A Seasonal Index for Business," by P. T. Ittig, Decision Sciences (Vol. 28, Number 2, 1997): 335–356.
The author explores the problem of obtaining a multiplicative seasonal index for forecasting sales from a small set of historical data and in the presence of a trend. It is shown that the standard method for generating a seasonal index (from a centered moving average) contains a systematic error. This error is transmitted through to forecasts that use the seasonal index and causes higher than necessary safety stocks and other consequences. The paper presents two alternative consistent methods for estimating the seasonal index in the presence of a trend, one for a multiplicative (nonlinear) trend and one for an additive (linear) trend.

"The Effects of Task Information and Outcome Feedback on Individuals’ Insight into Their Decision Models," by B. Tuttle and M. H. Stocks, Decision Sciences (Vol. 28, Number 2, 1997): 421–442.
This study examines whether people confuse their actual decision model with task information and outcome feedback. Subjects predicted the likelihood that various hypothetical companies would experience financial distress and then reported the decision models they believed they had used. Their reported models were compared with their actual models as estimated by a regression of the subjects’ predictions on the inputs to their decisions. In a 2 × 2 factorial design, some subjects were provided with task information regarding the relative importance of each input to their decisions, while others were not. Some subjects were provided with outcome feedback regarding the quality of their decisions, while others were not. The subjects tended to confuse the task information and outcome feedback with their actual decision models.

"Inducement of Nonexistent Order by the Analytic Hierarchy Process," by S. Schenkerman, Decision Sciences (Vol. 28, Number 2, 1997): 475–482.
This study describes an apparently unreported problem facing decision makers who use analytic hierarchy process (AHP). It is demonstrated that conventional AHP and some of its variants (the ideal mode and the pairwise aggregated approach) can induce ordering even when no order exists. It is also shown that all three approaches can induce different orderings and that the orderings are sensitive to innocuous changes. Thus, even absent addition or deletion of alternatives, the decision maker relying on AHP or these variants can be seriously misled.

"The Provision of Nonaudit Services by Accounting Firms to Their Audit Clients," by M. Firth, Contemporary Accounting Research (Vol. 14, Number 2, 1997): 1–21.
A model is developed that seeks to explain a company’s decision to hire nonaudit services from the auditor. The model argues that companies that face potentially high agency costs purchase relatively smaller amounts of nonaudit services from their auditor. High agency-cost companies require independent audits in order to reassure investors and creditors; the provision of joint services, which increases the economic bonding of the auditor to the client, may jeopardize independence or the appearance of independence. The model is tested using data observations from 500 companies, and the results indicate that companies that have higher agency-cost proxies are associated with smaller purchases of nonaudit services from their auditors.

"Two Models of the Auditor-Client Interaction: Tests with United Kingdom Data," by S. C. Hansen and J. S. Watts, Contemporary Accounting Research (Vol. 14, Number 2, 1997): 23–50.
The game-theoretic approach views the auditor as active, in that the auditor acknowledges the effect that his or her testing strategy has on the manager’s reporting. In contrast, in the decision-theoretic approach, the auditor test reports, but ignores the effect that such testing might have on the manager’s reporting behavior. Essentially, the decision-theoretic approach views the auditor as passive, taking the reporting strategy as given when designing tests. The authors use United Kingdom data to estimate both models and test their validity using nested hypothesis tests. The results demonstrate that the active, game-theoretic model better describes the auditor-manager interaction. This is the first empirical validation of the game-theoretic model using archival data.

"Debiasing Framing Effects in Auditors’ Internal Control Judgements and Testing Decisions," by C. Emby and D. Finley, Contemporary Accounting Research (Vol. 14, Number 2, 1997): 55–77.
This paper reports the results of an experiment examining the framing bias and a potential debiasing technique. Practicing auditors formed a judgment about a hypothetical client’s inventory internal control system to determine the amount of related substantive testing. Auditors from two Big 6 firms were randomly assigned to one of four treatments in a fully crossed 2 × 2 between-subjects design. The initial description on the internal control system was identical for all treatments, as were the items of additional evidence about the system. Auditors either judged the risk of the control system or the strength of the system. The risk-strength frames were crossed with two levels of debiasing technique: "none" or "evidence rating." Results indicate that without debiasing, significant framing effects were present, but that evidence rating significantly mitigated the framing effect. In this auditing context, the framing bias appears to be easily induced, but is not robust.

"The SEC’s Enforcement Actions Against Auditors: An Auditor Reputation and Institutional Theory Perspective," by T. P. Rollins and W. G. Bremser, Critical Perspectives on Accounting (Vol. 8, Number 3, 1997): 191–206.
The purpose of this study is to gain insight into the importance of auditor reputation by looking at the evidence provided by SEC enforcement actions against companies and their auditors. The authors investigate whether audit firm characteristics or type of financial reporting violations are related to enforcement actions against the auditor. Audit firm size, membership in the AICPA’s Division for CPA Firms, and the existence of disclosure violations are statistically significant in a logistic regression model. Institutional theory provides a perspective of this finding as the SEC and brand name auditors seek social legitimacy—which has public policy implications.

"Hypothesis Revision Strategies in Conducting Analytical Procedures," by S. K. Asare and A. Wright, Accounting, Organizations and Society (Vol. 22, Number 8, 1997): 737–755.
In this paper, the authors provide evidence on two issues that could compromise effective and efficient hypothesis evaluation: (1) the revision of beliefs over competing hypotheses given diagnostic evidence; and (2) whether an eliminated hypothesis is subsequently reconsidered as plausible. To address these issues, 55 auditors were provided audit test results and were asked to evaluate five potential hypotheses that may have caused a material fluctuation in the gross margin ratio of a client. The findings indicate that, when presented with diagnostic evidence about a target hypothesis, auditors were prone to adjusting the likelihood of the target hypothesis, but not revising the likelihoods of the competing hypotheses. This non-Bayesian revision strategy, which the authors label the "one-hypothesis syndrome," appears to represent a trade-off reflecting competing forces of cognitive strain, efficiency and accountability. They also found that, contrary to anecdotal evidence from an SEC release, auditors were reluctant to eliminate hypotheses and those who did, did not regard their eliminations as permanent.

"Status Building: Some Reflections on the Architectural History of Chartered Accountants’ Hall, London, 1889–1893," by S. McKinstry, Accounting, Organizations and Society (Vol. 22, Number 8, 1997): 779–798.
This paper examines the architectural history of Chartered Accountants’ Hall, London, from the point of view of its use by the Institute of Chartered Accountants in England and Wales to confirm and enhance its professional status in the early phase of its existence. Drawing on sociology of the professions literature, the study links the Hall with the emergence of the professional headquarters of the main legal and medical bodies on which the Institute of Chartered Accountants based much of its behavior. A loose model for such buildings is utilized as a framework within which relevant aspects of the detailed history of Chartered Accountants’ Hall are elaborated.

"On the Commercialization of Accountancy Thesis: A Review Essay," by H. Willmott and P. Sikka, Accounting, Organizations and Society (Vol. 22, Number 8, 1997): 831–842.
Hanlon’s thesis on the commercialization of accountancy is examined in relation to contemporary changes in the organization of work and the concentration and internationalization of the accounting industry. Attention is drawn to the tensions between Hanlon’s empirical materials and his exegesis of theoretical debates. An appreciation of the value of his book for highlighting the wider significance of accounting to a shift from Fordist to more flexible forms of accumulation is balanced by a discussion of various limitations. These include the neglect of nonaudit business undertaken by accounting firms, and the sketchy treatment of the links between these firms and the other key players that have supported and legitimized the progressive commercialization of accountancy.

"Discussion of: Corporate Disclosure of Environmental Liability Information: Theory and Evidence," by J. S. Hughes, Contemporary Accounting Research (Vol. 14, Number 3, 1997): 475–480.
Hughes attempts to identify the weaknesses and limitations of the authors’ theory and evidence. He asserts that the public policy implications of the model are unclear. There are no production decisions in the model, implying that the effects of disclosure are limited to redistribution and not efficiency. The model offers no new insights on the consequences of accounting standards. These consequences depend on enforcement mechanisms not captured by the model. The observation that a higher threshold, below which interest groups or government agencies would impose penalties beyond liabilities incurred, would lead to less disclosure is shown only for discontinuous jumps. Otherwise, the effect is reversed. Finally, Hughes states that the ambiguity of the proxies for model parameters, lack of control for potential industry effects on disclosure decisions, and the omission of a parameter likely to vary systematically with industry cast doubt on how well the model’s predictions are supported by the empirical data.

"Resource Allocation Decisions in Audit Engagements," by K. Hackenbrack and W. R. Knechel, Contemporary Accounting Research (Vol. 14, Number 3, 1997): 481–499.
The authors examine the empirical relationship between auditors’ resource allocations and selected engagement characteristics. Their measure of resources is hours of grades of labor "charged" to audit activities. Engagement characteristics examined are client size, industry affiliation, client complexity, risk, auditor provision of management advisory services to the auditee, and degree of control reliance. The data were obtained from publicly available sources and a survey developed and administered by an international public accounting firm. The authors find the cross-sectional variation in the labor charged to various audit activities can be explained by engagement characteristics found to be important in prior studies on audit fees, total labor inputs, and the mix of labor inputs. Measures of client size, industry, complexity, risk, and services provided are associated with changes in the allocation of labor among audit activities. The authors find no substitution of internal control review/testing for substantive testing on reliance audits. Task assignments vary by rank. Measures of client size, complexity, risk, and services provided are associated with activity-specific changes in the labor mix.

"An Investigation of the Effects of Specialization in Audit Workpaper Review," by E. M. Bamber and R. J. Ramsay, Contemporary Accounting Research (Vol. 14, Number 3, 1997): 501–513.
This study examines the effect of specialization at the different stages of an audit workpaper review. Auditing literature advises focusing each review level on specific kinds of errors, rather than having seniors and managers perform successive all-encompassing reviews. However, surveys of review practice suggest that all-encompassing reviews are common. To determine whether specialization at different levels of review improves reviewers’ overall effectiveness, this study has 35 managers and 39 seniors actually perform a review of a realistic set of workpapers. Half the subjects performed specialized reviews, whereas the other half performed all-encompassing reviews. The authors find that combined reviews of seniors and managers are more effective than those of either seniors or managers separately, demonstrating the benefits of hierarchical review. However, specialized review leads reviewers to be significantly less accurate than reviewers performing all-encompassing reviews. The results suggest specialization will not automatically improve review effectiveness.

"The Effect of Limited Liability on the Market Response to Disclosure," by P. E. Fischer and R. E. Verrecchia, Contemporary Accounting Research (Vol. 14, Number 3, 1997): 515–541.
In this research, the authors formalize the effects of an earnings disclosure on security prices under an assumption of limited liability. They derive various nonlinear relations between equity prices and earnings under a variety of capital structure assumptions and, if possible, they tie the relations attained to results from the existing empirical literature. They also characterize how debt prices respond to earnings when holders of debt have limited liability. Finally, the authors analyze how changes in the degree of leverage and conversion features of debt affect the relation between price and earnings.

"Conflict, Compromise and Conquest in Setting Auditing Standards: The Case of the Small Company Qualification," by R. A. Chandler, Critical Perspectives on Accounting (Vol. 8, Number 5, 1997): 411–429.
In the U.K., the Auditing Practices Committee (APC) was accused of acting as the puppet of the larger auditing firms. An analysis of the evolution of professional guidance provides an insight into the political processes at work. The development of the APC’s first auditing standards and guidelines during the late 1970s met with initial resistance from small practitioners who resented the imposition of what they regarded as large-firm practices. To make the standards more acceptable to small audit firms, the Auditing Guideline, Audit Report Examples, contained an example (Example 6) of a qualified audit opinion that was specifically tailored to the circumstances of the typical small company audit client. This style of audit report became increasingly common through the 1980s. Eventually, in 1989, the APC prohibited further use of Example 6. The aim of this paper is to examine the stages of conflict, compromise and conquest in the process of setting auditing standards using the development of the Example 6 audit report as a case study. The study also illustrates the capacity of professional bodies to appear to be taking action in response to threats to the status quo of the profession-state relationship.

"The Dialectics of Consultancy," by A. Sturdy, Critical Perspectives on Accounting (Vol. 8, Number 5, 1997): 511–535.
This article develops a critical and integrative model of consultancy as a dialectical, yet structurally and existentially self-defeating process. Primary data from IT strategy consultancy in U.K. financial services and secondary data from accounts of consultancy and organizational change in the U.K. and U.S. are selectively drawn on to highlight client resistance and the pressures and insecurities of consultancy. At the same time, emphasis is given to the historical role and mixed fortunes of consultants as agents of capital and to intra-management conflict and cooperation in the more recent transformations of managerial work and discourses such as that of IT strategy.

"Cultural and Economic Influences on Current Accounting Standards in the People’s Republic of China," by L. E. Graham and C. Li, The International Journal of Accounting (Vol. 32, Number 3, 1997): 247–278.
The authors point out that while China has forged many principles that are similar to Western and international practice, there are anomalies that may not be easily explained without a more detailed understanding of the cultural, economic and political environment now facing China. The principle of Guo Qing implies that change will be implemented only in conjunction with Chinese needs. As evidenced in the statutory restrictions on the value of certain contributed intangibles, the write-offs of accounts receivable, and the discretionary write-downs of inventory for lower-of-cost-or-market considerations, there remains some areas of accounting practice that Chinese historical, cultural and economic circumstances encourage an inexplicable result. Additionally, there remain differences in perspective that are more attributable to history than to specific accounting rules.
"Developing Accounting Standards on the Basis of a Conceptual Framework by the Chinese Government," by Z. Xiao and A. Pan, The International Journal of Accounting (Vol. 32, Number 3, 1997): 279–299.
The Chinese government has been developing accounting standards on the basis of a conceptual framework (CF) titled Accounting Standards for Business Enterprises (ASBE). This article evaluates the role of the ASBE and explores the potential benefits and risks of and the reasons for the adoption of a government-controlled and CF-based approach. The authors argue that a CF can play an important role even if accounting standard setting is controlled by the government; however, the ASBE provides an insufficient basis for developing accounting standards.

"An Exploratory Investigation of Industry Specialization of Large Audit Firms," by I. De Beelde, The International Journal of Accounting (Vol. 32, Number 3, 1997): 337–355.
This paper’s primary topic of interest is industry specialization, but includes overall concentration as well. Significant overrepresentation of an audit firm in an industry might mean that the firm has developed an audit approach specifically adapted to the industry and gives the audit firm a competitive advantage over other audit firms. Auditor data were collected for 11,611 large companies in 14 countries; both CR4 and a measure for specialization were calculated. The results are that concentration is variable over countries and industries, and presence of Big 6 audit firms in specific industries is not consistent over countries. Differences seem to exist between audit firms, however, with respect to their specialist or generalist nature.

"Trends in Independent Auditor Liability: The Emergence of a Sane Consensus?" by J. A. Siliciano, Journal of Accounting and Public Policy (Vol. 16, Number 4, 1997): 339–353.
Judicial changes in tort rules governing third-party claims against independent auditors have a created a liability crisis for the public accounting profession. This paper examines both historical and recent developments in the efforts of courts to fashion workable rules in this area. The deficiencies of the two dominant views—one arguing for a narrow scope of liability based on the contractual nature of the audit engagement and the other proposing broad liability based on the foreseeability of harm to third parties from a negligently performed audit—are discussed. The paper suggests that the recent retreat of courts from expansive liability rules and their adoption of a compromise liability rule may signal a growing appreciation of the inappropriateness of either of the traditional conceptualizations. To date, however, such decisions fail to reflect fully the unique nature of the public audit engagement.

"Audit Litigation Research: Do the Merits Matter? An Assessment and Directions for Future Research," by Z. V. Palmrose, Journal of Accounting and Public Policy (Vol. 16, Number 4, 1997): 355–378.
This article reviews audit litigation research and discusses suggestions for future research. Recent reforms in federal and state laws related to accounting and auditing services increase the opportunities for research. An overarching issue in the public policy debate over legal reforms is the role of merits in bringing and resolving lawsuits against auditors; this issue frames the discussion of audit litigation research.

"The Threat of Litigation and Voluntary Partner/Manager Turnover in Big Six Firms," by D. R. Dalton, J. W. Hill and R. J. Ramsay, Journal of Accounting and Public Policy (Vol. 16, Number 4, 1997): 379–413.
The authors report the results of an empirical analysis of unique questionnaire data obtained from former partners and managers who left Big 6 firms during the period 1990–1992. A substantial portion of the respondents indicated that the threat of litigation influenced their turnover decisions. Having made personal payment because of litigation was significant in explaining the importance of the threat of litigation in turnover decisions. Further, path analysis revealed evidence of indirect effects of the threat of litigation on work/non-work commitments and control/supervision, which in turn affected turnover. Both the act of having made personal payment as a result of litigation and the prospect of doing so in the future were significant in explaining respondents’ decisions to leave public accounting altogether. The authors’ findings support the public accounting profession’s arguments of linkages between turnover and the threat of litigation.

"An Investigation of Independent Audit Opinions and Subsequent Independent Auditor Litigation of Publicly Traded Failed Savings and Loans," by W. G. Blacconiere and M. L. DeFond, Journal of Accounting and Public Policy (Vol. 16, Number 4, 1997): 415–454.
This study investigates the audit opinions of publicly traded S&Ls that subsequently failed. The authors found that the independent auditors of failed S&Ls issued qualified (or modified) going-concern disclaimers of opinion on the last audited financial statement prior to failure in 19 of 24 cases. Results of univariate and multivariate analyses are consistent with several predictions concerning economic factors expected to influence the type of audit opinion, and the authors’ evidence suggests that auditors rendered going-concern reports to those S&Ls that were most likely to fail ex ante. Analysis of independent auditor litigation data reveals that auditor lawsuits related to these failed S&Ls were filed in seven cases. Five of these seven lawsuits implicated auditors who rendered going-concern reports. This suggests that going-concern reports in the year prior to the failure of an S&L do not prevent auditor litigation.

A partner of a Big 6 auditing firm related to one of our faculty a story of a new auditor who was confronted with a difficult audit issue. Rather than turning to the AICPA Professional Standards, the novice auditor referred to his CPA review book for guidance. Thankfully, the student attended a rival institution! This story, however, highlights the fact that students need exposure to the AICPA Professional Standards, the authoritative source for such guidance, during their auditing classes. While textbooks often provide an extensive summary of the Professional Standards, the Standards are rarely prescribed for classroom use. In fact, SAS No. 69, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles in the Independent Auditor’s Report," lists textbooks above only journal articles as an authoritative source of professional guidance. Further, given the increasing frequency of new standards, textbooks are often out of date before they are available to students. Textbooks are usually not revised for several years; the Professional Standards are updated and issued in June of each year.

Given that (1) the Standards are the most authoritative source for professional guidance and (2) accounting students need "hands-on" experience with the Standards, why are the Professional Standards not used more often in the classroom? In most cases, it comes down to a simple cost-benefit analysis. Most auditing textbooks provide a more thorough exploration of auditing, including auditor’s legal liability, audit sampling and other topics not specifically covered in the Standards. Auditing textbooks also present the material in a straightforward, easy-to-understand format that aids the student in understanding the material. Textbooks routinely sell for $70 to $80; it is difficult to justify the additional $80 to $90 necessary to purchase a copy of the Professional Standards.

Since 1989, the AICPA has made an electronic medium (CD-ROM) copy of the AICPA Professional Standards available to educational institutions through its Academic Site License Program for only $200 (as of 12/31/97). Under the Academic Site License Program, colleges and universities can obtain the AICPA Electronic Research Series Professional Standards directly from the Academic and Career Development Division of the AICPA. While over 200 educational institutions have purchased software products under this special educational program, only about 25 have obtained the Professional Standards. The AICPA Electronic Research Series Professional Standards may be shared with students to further their knowledge of the professional literature and sharpen their research skills.

The primary use of the AICPA Electronic Research Series Professional Standards software in our auditing classes has been as a reference source for "Look-Up Quizzes." Students are given questions, usually either hypothetical ethical dilemmas or technical questions adapted from old CPA exams, for which they must find authoritative answers in the Professional Standards. Alternatively, when a student asks a particularly difficult question during class, the question can be made into a simple assignment. We have loaded the Standards onto our local area network (LAN) server; our students are able to access the Standards from personal computers connected directly to the LAN.

The AICPA software has a "key word" search capability. Users input subjects or issues for which they are trying to find relevant guidance, and the software takes them to sections of the Professional Standards that include the search terms, making the search quick and relatively simple as compared to using the printed version of the Professional Standards.

Classroom use of the AICPA Electronic Research Series Professional Standards, and "Look-up Quizzes" in particular, provides several benefits to the students:

1. Use of the Standards in the classroom provides the student with an early exposure to the primary reference of the auditing profession. More importantly, use of the Professional Standards provides the student with an opportunity to learn research skills for solving some of the types of problems that they will face regularly in accounting practice. The student must develop familiarity with the Standards to find the answers. For example, in an ethical dilemma, the students must refer to the Code of Professional Conduct rather than the Auditing Standards. Similarly, there are sections for Accounting and Review Services, Tax Practice, Consulting Services, International Accounting and Auditing Standards and other areas of professional practice.
   
2. The student is provided with a cost-effective introduction to the AICPA Professional Standards. Moreover, the Standards’ use in the classroom emphasizes their role as the authoritative source for professional guidance.
   
3. The Professional Standards are an excellent reference source for such guidance throughout the student’s accounting education, continuing beyond the auditing class.
   
4. Students are introduced to a different computer application. Typical exposure to computers in accounting curriculum consists of spreadsheet software. While use of this system does not require programming, it does increase the inventory of computer applications with which the student is familiar. Most, if not all, of the larger accounting firms use similar research tools.
   
5. While several studies (Benke and Hermanson 1991; Helmi 1986; Izard and Reeve 1986) have highlighted the additional time required to teach a new software language as a major concern for computer integration in accounting classes, minimal class start-up time is required due to the self-explanatory nature of the system.
   

The advantages outlined above provide a strong case for inclusion of the AICPA Electronic Research Series Professional Standards in most auditing curricula. The incorporation of the AICPA Electronic Research Series Professional Standards into auditing classes provides students with an opportunity to gain familiarity with a current, authoritative source of auditing information at relatively low cost to the student. Rather than simply answering test or quiz questions from memory, students are required to find answers to "real-world" questions that can be more complex and out of the ordinary than would be feasible on a test. Additionally, the search capability built into the electronic version of the Professional Standards allows users relatively quick and easy access to pertinent information. Students can thus gain additional exposure to the benefits and uses of database technology. Finally, and most importantly, use of the electronic version of the Professional Standards permits students to find guidance for issues in a manner that parallels how practicing auditors frequently address technical issues encountered in the field.

While the impact of the use of the electronic version of the Professional Standards on student achievement has not been measured, initial feedback from students has been positive. Not only do the students appear to prefer the use of the actual Standards over auditing textbooks (and the hard copy version of Standards), several students noted that they voluntarily explored the Standards in greater depth than the assignments required.

Benke, R., and R. Hermanson. 1991. Teaching and learning with microcomputers. Management Accounting 3: 60.

Helmi, M. 1986. Integrating the microcomputer into accounting education—Approaches and pitfalls. Issues in Accounting Education 1: 102–111.

Izard, C., and J. Reeve. 1986. Electronic spreadsheet technology in the teaching of accounting and taxation—Uses, limitations, and examples. Journal of Accounting Education 4: 149–158.

Editor’s Note: This article was adapted from Graham’s address to members of the Auditing Section attending the 1998 Midyear Conference in Mesa, Arizona.

My first experience with a disconnect between theory and practice was as a trainee in the army. To myself and the other recruits, our instructor provided the theory that in order to jump from a moving truck without incurring injury, we should run from the bed of the truck at the same speed the truck was moving. Thus, when we hit ground, we would be standing still! However, he neglected to account for such factors as ruts in the road, etc., and most of us landed with our faces in the mud. I wish to share this early lesson of the difficulties in applying theory to practice with you today, as it applies to my work at the World Bank as well as to yours in the classroom.

At the World Bank, we continually find challenges to theories that we think are a good idea. We have 180 member countries, and we work with many other agencies in the public and private sectors. Our main task is partnering with the people themselves in developing countries. About $200 billion in capital flows goes to developing countries, of which a large portion is targeted to Russia, China, India, Indonesia and Brazil. Many other needy countries tend to be overlooked, leaving assistance for those economies up to the World Bank Group which supplies some $15 billion worldwide. In the world today, about 3 billion people live on less than $2 per day and 1.3 billion live on less than $1 per day. Education is not possible for about 150 million people and 100 million go hungry each day. All of these people deserve our respect and support. They have significance in their own countries, as well as having an impact on the world economy.

One fact of which I am increasingly aware is that the lines between developed and developing nations are becoming quite fuzzy. Currently, developing nations contribute about 18 percent of the global GDP. Projections are that by 2020, they could account for as much as 30 percent. The economic map of the world is being redrawn. The people you teach will be a part of this new world. Are your students equipped for the realities ahead? For instance, a recent article in The Economist gives a sense of this fuzziness. Entitled, "Firms That Never Sleep," this article discussed how a call made to British Airways in London at 11:30 p.m. is answered by a wide-awake operator in New York. Given available global technologies, companies no longer need to employ sleepy night shift operators in Britain, as long as the locals can understand the strange New York accents! Looking forward, we can no longer prepare one set of books, being audited in one country, in one neat time zone. What we’re teaching is not in line with what currently exists. The students we teach will be working in companies that are globally interwoven, and our teaching must reflect this.

In accounting, each of us wants to ensure that what we teach (and what we do) has relevance. Give your students a sense of the whole. We can’t just take one approach — we can’t just talk finance when so much of the work is operational. An example of the value of different approaches comes from a program recently offered to World Bank managers by faculty from Harvard and Stanford universities. The Harvard faculty all came in suits, tended to talk in clipped, precise phrases, and ended sentences with "Right?" (with which I was not prepared to argue). They emphasized "hard" skills, the importance of strategy and identifying key tasks. In contrast, the Stanford faculty tended to dress more casually, sprinkling their speech with the phrases "like" and "whatever." They emphasized people skills and cultural context. With their different approaches both were correct. However, both groups admitted they had spent too little time studying the World Bank, nor had they spent time with our clients to get a sense of our mission. For teaching to be relevant, it is essential that we go this far. They, like us, are struggling with inflexibility, deep hierarchical structures, stubbornness and pride. We all need to challenge ourselves, to ensure that the theories we use fit the situations we encounter in practice.

In the developed world, we have a set of assumptions about how things work. We have knowledge, equipment and control frameworks such as COSO and the FASB. In the developing world, there is much societal ignorance. This ignorance results from distance, lack of teachers, lack of funds and language barriers. Yet students from these countries see themselves not as people with rights, but as people who have the privilege of education, and who have a huge societal responsibility as a result. They often have no equipment and no frameworks, but sometimes do have systems that are vestiges of a colonial past. There is ample opportunity for corruption, which is fueled by the developed world. Corruption works against development, and must be addressed if development is going to occur. To have an effect, we must educate officials at all levels and in all countries of the value of transparency and accountability.

Despite limitations and huge want, there is an amazing amount of good being done. For example, behind the temples of Luxor, homes with no running water house large families who depend on a single wage-earner. But some people there have grasped how they can leverage off the resources available to using aid money. For instance, one man, with limited use of his legs, has built a small factory employing eight people in a tailoring business. He started with a loan and was able to buy one sewing machine and grow his business from this. In Uganda, following a crop failure, new types of food plants are being experimented with on small farms by groups of women farmers. In Russia, workers of the old collective farms are taking charge of their future by becoming owners and participants on the farms they live and work on.

In our classes, we can no longer be narrowly focused on financial matters. We must be careful to open our eyes to include aspects of cultural difference, and instill an appreciation of the importance of the developing world in our students. Each of us needs to step back and consider reality, and if we are able, to visit developing countries for ourselves. After all, that is what global companies are doing! We need to practice what we teach, and we must emphasize the importance of transparency and accountability. Only then can we have an impact on the many people in the world who live on less than $2 a day.

Call for Submissions
The fifth Annual Midyear Auditing Section Conference will be held in Atlanta, Georgia, on January 14–16, 1999. CPE sessions will be held on the afternoon of January 14. The remainder of the conference will consist of keynote, plenary and concurrent sessions dealing with a wide variety of contemporary topics related to audit, attestation and assurance practice, education and research. You are encouraged to contribute to the program through submissions of auditing/attestation/assurance research and education papers, and special session proposals. Particular emphasis will be given to papers and sessions dealing with educational issues.

The conference will be held at the Omni Hotel in Atlanta. The Omni is located next to the CNN Tower. Tours through the CNN news studios will be available. After a long, thought-provoking day of meetings, Atlanta is a great place to enjoy a fine restaurant, abundant shopping, active nightlife and other outstanding tourist attractions.

Submission Guidelines
Research papers should follow the style guidelines of Auditing: A Journal of Practice & Theory. Other submissions should take an appropriate form to permit review of their originality, quality and usefulness. Submissions are not eligible for consideration, if they (1) have been published or accepted for publication, (2) were presented at the 1998 AAA Annual meeting, or (3) were presented at more than one AAA regional meeting or other academic conference. Papers presented at the Research Forum of the AAA Annual Meeting are eligible for consideration. It should be noted that papers accepted for presentation at the 1999 Midyear Auditing Section meeting can also be submitted for presentation at the AAA Annual Meeting scheduled for August 1999.

Abstracts only will be published in the proceedings’ booklet. By December 1, 1998, authors of accepted submissions are expected to provide the designated session discussant with a final printed copy. Instructions for placing accepted papers on the Section’s web site will be included in acceptance letters.

Submission Deadline
Four copies of submissions must be received by September 4, 1998, to be considered for the program. Early submission is encouraged. Any questions should be addressed to:

Stanley F. Biggs
University of Connecticut
SBA Accounting U-41A
368 Fairfield Road
Storrs, CT 06269-2041
Phone: (860) 486-2374;
Fax: (860) 486-4838
Email: stan@sbaserv.sba.uconn.edu 

Appointment of New Editor
JAI Press Inc. is pleased to announce that Bill N. Schwartz, Professor of Accounting at Virginia Commonwealth University, is the new editor of Research on Accounting Ethics. In addition, Dean Steven M. Mintz, California State University, San Bernardino, will be an associate editor in charge of the new Cases section.

Call for Papers
Research on Accounting Ethics seeks thoughtful and well-developed empirical or nonempirical manuscripts on a variety of current topics in accounting ethics, broadly defined. It examines all aspects of ethics and ethics-related issues in accounting including, for example, accountability, financial reporting, organizational control, gender issues, quality concerns, professional codes, organization and culture, judgment and decision-making litigation and regulation and social responsibility. Acceptable research methods for empirical work include action research, archival analysis, field-based studies, financial statement analysis, laboratory experiments, mathematical modeling, psychometrics and surveys.

Nonempirical manuscripts should be academically rigorous. They can be theoretical syntheses, conceptual models, position papers, discussions of methodology, comprehensive literature reviews grounded in theory, or historical discussions with implications for current and future efforts. Reasonable assumptions and logical development are essential. Most manuscripts should discuss implications for research.

For empirical reports sound research design and execution are critical. Articles should have well-articulated and strong theoretical foundations. In this regard, establishing a link to the nonaccounting literature is desirable. Replications and extensions of previously published works are encouraged. As a means for establishing an open dialogue, responses to, or comments on, articles published previously are welcomed.

Submission Information
Five copies are required; the submission fee is $40. Manuscripts should include a cover page which indicates the author’s name and address and a separate lead page with an abstract not exceeding 250 words. The author’s name and address should not appear on the abstract. In order to assure an anonymous review, authors should not identify themselves directly or indirectly. Reference to unpublished working papers and dissertations should be avoided. Submit manuscripts to:

Bill N. Schwartz
School of Business
Virginia Commonwealth University
1015 Floyd Avenue
Richmond, VA 23284-4000

Cases: Three copies of cases and proposed teaching notes should be sent directly to:

Dean Steven M. Mintz
Department of Accounting & Finance
School of Business and Public Administration
California State University, San Bernardino
5500 University Parkway
San Bernardino, CA 92407-2397

Call for Reviewers
Individuals interested in being a member of the editorial review board should contact Professor Schwartz by email at bschwartz@busnet.bus.vcu.edu and explain their interests.

Call for Papers
Academicians, practitioners and doctoral students are invited to submit research papers for possible presentation at the meeting. Papers in all areas of behavioral accounting will be considered. Theoretical papers and papers based upon empirical research are appropriate. Diverse methodologies are encouraged, including field, experimental and critical research. Replications and extensions of previously published studies will be considered. Special consideration will be given to papers that address the efficiency and effectiveness of performance in accounting and auditing contexts.

Call for Participants
Persons interested in serving as paper reviewers, paper discussants or session chairs should send a letter or email with name, position and affiliation, complete address, telephone number, email address and other areas of interest to Professor Jeff Cohen, Boston College, at the address below.

Conference Facilities
The Conference will be held at Disney's newest resort, the Disney Coronado Springs Resort. A very reasonable rate of $115 per night (plus applicable taxes) has been negotiated for Conference participants. The resort features a Southwestern motif and is highlighted by colorful plazas, palm-shaded courtyards and a rocky shoreline surrounding a shimmering lake. There is a full-service restaurant and lounge, as well as a themed food court on site. The resort is centrally located near Epcot, Disney-MGM Studios and is a neighbor to Disney's Animal Kingdom Park (opening Spring 1998). Airport shuttle service is available and there is free transportation from the resort to all Disney venues.

Guidelines for Submission of Papers
1. Papers should not have been published prior to the Conference.
2. An original and four copies must be submitted. The four copies should not contain any author identification.
3. The cover page should indicate the following information:

a. Full names of authors.
b. Positions and affiliations.
c. Complete address.
d. Telephone and fax numbers.

4. Papers should be prepared according to the reference and footnote guidelines of the American Accounting Association (see Behavioral Research in Accounting).
5. Papers accepted for presentation may, at the option of the author, be considered for publication in Behavioral Research in Accounting (BRIA) or Advances in Accounting Behavioral Research (AABR). Authors should indicate at the time of conference submission if the paper should also be considered for journal publication. Authors should indicate if they would like the paper to be considered for publication in BRIA, AABR or both journals. Papers considered for journal publication will be reviewed in accordance with the review procedures for the selected journal.
6. Papers should be sent to Professor Jean Bedard, Northeastern University, at the address below.

Important Dates
May 1, 1998 —Final date for submission of papers and notice of participant's interest.

Nonrefundable submission fee for papers is $50, payable to AAA/ABO.

June 30, 1998—Notification of acceptance of papers.

September 11, 1998—Deadline for conference registration. Early registration fee is $195 ($145 for submitting authors, one per paper; $65 for doctoral students).

October 16–17, 1998 —Conference dates.

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