Gary S. Monroe

Exploring Social Desirability Bias

This study examines social desirability bias in the context of ethical decision-making by accountants. It hypothesizes a negative relation between social desirability bias and ethical evaluation. It also predicts an interaction effect between religiousness and gender on social desirability bias. An experiment using five general business vignettes was carried out on 121 accountants (63 males and 58 females). The results show that social desirability bias is higher (lower) when the situation encountered is more (less) unethical. The bias has religiousness and gender main effects as well as an interaction effect between these two independent variables. Women who were more religious recorded the highest bias scores relative to less religious women and men regardless of their religiousness.

Environmental management accounting in local government: A case of waste management

Purpose - This study aims to explore the state of environmental management accounting practice and the motivations for its use with a view to improving waste and recycling management by local government. The focus is on practice in local governments situated in the state of New South Wales (NSW), Australia. Prior studies suggest the need for environmental management accounting as a supporting tool for waste management. Design/methodology/approach - An exploratory case study method was applied in 12 NSW local government organisations. In each local government interviews were conducted with managers responsible for waste and recycling issues. Findings - Contrary to prior research this study found that, in the local governments investigated, an increasing amount of environmental management accounting information is being made available. The case studies found two main motivations encouraging the development of environmental management accounting in local government: first, social structural influences, such as regulatory pressures from different environmental regulatory bodies, environmental expectations from local communities, and pressures from peer councils; second, organisational contextual influences reflecting situational needs in the organisational contexts, such as complex waste operations and service designs, changes and uncertainties in waste and recycling management, and the councils strategic position for waste management. Research limitations/implications - The results imply that institutional theory and contingency theory provide different but complementary explanations for the development of environmental management accounting in waste management. Although previous environmental studies are overwhelmingly in favour of social system-based theories, such as institutional theory, to explain environmental changes in organisations, an organisations contextual dynamics seem to be equally important. Originality/value - The findings about motivations provide useful information for environmental strategists and government regulators to make policies that improve accountability and the efficiency of waste and recycling management as well as promote future development of environmental management accounting to support sustainable waste management solutions.

Gender differences in information processing: An empirical test of the hypothesis-confirming strategy in an audit context

Accounting education research reports that female students outperform male students. We posit that different information processing styles may have accounted for this difference. We postulate that because male students tend to process information selectively, they would rate confirming information as more important than female students would. Female students would rate disconfirming information as more important. We also postulate that male students are hypothesis-confirming whereas the female students are not. Consequently, female students being comprehensive processors, would rate the task as more difficult compared to male students. To test these propositions, 36 male and 33 female students performed an evaluation task that contained equal numbers of confirming and disconfirming cues. The students were required to rate the importance of these cues to their hypothesis. The results support our propositions except that female and male students do not rate confirming information significantly differently from each other.

The effects of experience and task difficulty on accuracy and confidence assessments of auditors

This study extends prior research in psychology and auditing by examining the effects of audit experience and task difficulty on control risk evaluation. It also examines whether the effect of framing is mitigated by the simultaneous presentation of information. Ninety-eight auditors performed a control risk evaluation task and recorded their judgement and their confidence. We find that judgement confidence increases with audit experience and that judgement confidence decreases as perceived task difficulty increases. However, we find no relation between audit experience and judgement accuracy or between perceived task difficulty and judgement accuracy. In addition, we find a significant negative relation between judgement confidence and judgement accuracy, which indicates that the participants’ confidence is not appropriate. As expected, there is no framing effect when information is presented simultaneously.

The Value of Big 4 Audits in Australia

Research suggests that equity markets value Big N audits over non-Big N audits. Explanations include the information quality hypothesis, whereby Big N auditors increase information quality, and the insurance hypothesis, whereby investors value the deeper pockets of Big N auditors. Using client firms’ ex ante cost of capital as the dependent variable, we investigate whether capital market participants differentially value Big 4 versus non-Big 4 audits in Australia and whether the value of Big 4 audits in Australia changed as a result of the audit failures of 2001–2002. We find that Big 4 audits reduce the ex ante cost of equity capital until 2001, but not after 2001. We cannot dismiss the insurance hypothesis for the persistence of the loss beyond 2003 because of the establishment of liability caps, but the demise of the Big 4 audit value for 2001–2003 is consistent with the information quality hypothesis and does not support the insurance hypothesis.

The impact of monetary policy candidness on Australian financial markets

In January 1990, the Reserve Bank of Australia (RBA) changed from a covert disclosure policy to an overt disclosure policy. Using a sample from January 1986 to September 2001, this paper examines the reaction of Australian financial markets to rate target changes within each of these disclosure regimes. We find significantly different announcement day responses between the two disclosure regimes for both short-term and long-term treasury securities, and equity indices. Overall, the results indicate that when monetary policy is more transparent, the market reaction is less pronounced and, therefore, we conclude that fuller disclosure of monetary policy allows investors to more optimally manage their portfolios.

The Descriptive Ability of Models of Audit Risk

Auditors are required to perform assessments of risk during the planning stages of an audit. Consequently, the efficiency and effectiveness of audits should be affected by risk assessments. Various models that could assist auditors in the risk assessment task have been discussed in the auditing literature.

The effects of counterexplanation and source of hypothesis on developing audit judgment

Inheriting a hypothesis from a superior and explaining ones decision may lead to the use of a hypothesis-confirming strategy (Church, 1991; 1990). This study investigates whether generating ones own hypothesis and counterexplaining would mitigate such behaviour among auditing students in a classroom situation. We hypothesized that auditing students who inherit their hypothesis from an instructor would resort to a hypothesis-confirming strategy whereas those who generate their own hypothesis would not. Similarly, those who explain their decisions would be hypothesis-confirming but those who counterexplain would not. An experiment using an auditing case study was carried out and the results support our hypotheses. These results have instructional and assessment implications.

Mutual Fund Trades: Timing Sentiment and Managing Tracking Error Variance

We use portfolio holdings to show that mutual funds preferentially trade stocks according to the stocks’ sentiment betas. Stocks with high sentiment betas are more responsive to investor sentiment and increase (decrease) in value as sentiment increases (decreases). Sentiment-based trades may be motivated by the opportunity to increase fund returns through timing predictability in sentiment, or by management of portfolio risk. Sentiment is mean-reverting, but its level and recent change only partially explain these trades. In contrast, 30 percent of sentiment-based trades are explained by the initial sentiment beta of funds that trade to reduce their tracking error variance.

Effects of goal orientation, self-efficacy and task complexity on the audit judgement performance of Malaysian auditors

Purpose - The purpose of this paper is to examine the effects of self-efficacy, goal orientation and task complexity on audit judgement performance in correctly linking audit procedures to audit objectives and types of misstatements. Design/methodology/approach - The authors conducted an experiment audit with 154 auditors from small and medium audit firms in Malaysia as participants. The experimental task required them to link audit procedures to audit objectives and types of misstatements. Findings - For sample of auditors from small and medium audit firms in Malaysia, the authors found that learning goal orientation has a stronger effect on audit judgement performance than performance-approach and performance-avoidance goal orientations. Self-efficacy mediates the effect of goal orientation when an audit task is less complex compared to when the task is more complex. Research limitations/implications - These results highlight the importance of social cognitive factors in explaining variations in audit judgement performance for audit judgement tasks with different levels of complexity. Originality/value - The incorporation of individual psychological differences as explanatory variables in audit judgement studies may lead to a better understanding of auditors’ judgement and decision-making processes in small and medium audit firms located in developing economies.