James D. Stice

Misstatement Direction, Litigation Risk, and Planned Audit Investment

This study reports the results of an experiment showing that auditor assessments of litigation risk and planned audit investments are higher when potential errors overstate financial performance than when those errors understate performance. This result is much stronger in the presence of high levels of litigation risk in the client’s industry. These results suggest that in industries where litigation risk is high audited financial statements may contain more unintentional material understatement errors than overstatement errors. Thus, litigation risk—through its effect on auditors—may encourage financial statements that understate firm performance

The Effect of Performance on the Decision to Major in Accounting.

Abstract Prior research (Cohen & Hanno, 1993) posits that performing well in the introductory accounting course makes it more likely that a student will select accounting as a major. Using survey and classroom performance data, this study measured the influence of performance on the decision to major in accounting of a smaller, more relevant group of students—those who, by meeting a minimum grade requirement, are eligible to major in accounting. We found, contrary to prior research, that better classroom performance did not proportionally influence the students intent to major in accounting. Rather, once students passed through the performance screen, other factors affected their decision to major. This article proposes that accounting programs view their initial accounting principles course as both a screening and a recruiting device for the accounting major.