John M. Hassell

Voluntary Causal Disclosures: Tendencies and Capital Market Reaction

In this study, we provide empirical evidence on whether voluntarily disclosed causal attributions made in management earnings forecasts are credible by investigating the conditions under which such attributions are made and the extent to which security price responses are associated with attribution existence. We find that causal attributions are more likely to be made when forecast news is bad (relative to good), and that the type of attribution made is more likely to be external (internal) for bad (good) forecast news. Incorporating the existence and type of attribution into models that explain announcement period three-day cumulative abnormal returns yields significant effects for attribution incidence and type after controlling for unexpected earnings and forecast type (e.g., point, range, etc.). Consistent with the idea that attributions enhance the credibility or precision of management forecasts, attribution disclosure enhances price reactions per dollar of unexpected earnings conveyed in a management forecast.

Accounting education literature review (1997–1999)

Abstract By reviewing a subset ot the accounting education literature published during the period 1997–1999, this paper updates literature reviews by Rebele, Apostolou, Buckless, Hassell, Paquette, and Stout [Rebele, J.E., Apostolou, B.A., Buckless, F.A., Hassell, J.M., Paquette, L.R., & Stout, D.E. (1998a). Accounting education literature review (1991–1997), part I: curriculum and instructional approaches. Journal of Accounting Education, 16(1), 1–51.] [Rebele, J.E., Apostolou, B.A., Buckless, F.A., Hassell, J.M., Paquette, L.R., & Stout, D.E. (1998b). Accounting education literature review (1991–1997), part II: students, educational technology, assessment, and faculty issues. Journal of Accounting Education, 16(2), 179–245.]; Rebele, Stout, and Hassell [Rebele, J.E., Stout, D.E., & Hassell, J.M. (1991). A review of empirical research in accounting education: 1985–1991. Journal of Accounting Education, 9(2), 167–231.]; and Rebele and Tiller [Rebele, J.E., & Tiller, M.G. (1986). Empirical research in accounting education: a review and evaluation. In A. C. Bishop, E. K. St. Pierre & R. L. Benke (Eds.), Research in accounting education (pp. 1–54). Harrisonburg, VA: Center for Research in Accounting Education, James Madison University]. We review published articles related to the topics of assessment, curriculum and instructional approaches, educational technology, faculty issues, and students from the following five journals: Journal of Accounting Education, Issues in Accounting Education, Accounting Education, The Accounting Educators’ Journal, and Advances in Accounting Education. A large number of accounting educators have contributed to the literature between 1997 and 1999, with over 390 different authors cited in the body of the text (30 authors published two articles, 11 published three, and one author published four articles). More than 120 individuals are cited as authors of cases and instructional resources (seven authors published two cases and one published three). Recommendations for research are offered at the end of each major section. An appendix identifies instructional cases and educational resources published during the 1997–1999 period by journal and topic.

The sensitivity of the analytic hierarchy process to alternative scale and cue presentations

Abstract The Analytic Hierarchy Process (AHP) has gained prominence in the accounting literature as a method to model the decisions of experts. Also, the AHP is used to help individuals structure decisions. AHP researchers have several choices when constructing AHP instruments that elicit judgments from participants; however, little guidance is available regarding the ‘best’ choice. In particular, the AHP response scale can be numerical, verbal, or graphical. Paired comparisons can be presented in a random or nonrandom format, or in a top-down or bottom-up order. This paper reports the results of three related experiments investigating whether differences in the scale used or the format order of paired comparisons yields significant differences in the AHP models. The results offer some evidence that the scale used is associated with different AHP models. Also, some evidence is provided that the random versus nonrandom format of the paired-comparison presentation is associated with different AHP models. However, the results for the scale and format effects are not evident across all experiments.

An empirical examination of the sensitivity of the analytic hierarchy process to departures from recommended consistency ratios

We use the Analytic Hierarchy Process to examine the judgments of 126 professional internal auditors regarding the importance of 14 factors (called red flags) that may signal the potential for financial fraud within a business organization. The red flags are separated into three categories: management characteristics, firm characteristics, and industry characteristics. The professional internal auditors rated management characteristics as the most important category of characteristics, with five specific characteristics having local weights of 0.117-0.283. Additionally, and perhaps more importantly, we examine whether the global weights for the 14 red flags are different for subsamples of 61 responses with individual consistency ratios of @? 0.10, and 65 responses with consistency ratios of > 0.10. The results indicate that the global weights of the two subsamples are not significantly different. This finding provides preliminary evidence that researchers may be able to use responses with consistency ratios of > 0.10 without affecting the overall findings.

Predicting Subsequent Management Forecasting Behavior at the Date of an Initial Public Offering

In this study, we examine the conditions and choices of firms at dates of initial public offerings (IPOs) as a basis for predicting their likelihood of management earnings forecast disclosure in post-IPO periods. Using a sample of 944 IPOs, we demonstrate that firms choosing to reduce IPO information asymmetries or signal issue quality by choosing prestigious underwriters, high quality auditors, and higher percentages of retained ownership tend to issue management forecasts in the post-IPO period. These relationships exist after controlling for IPO date measures of risk/stability, a construct that prior management forecast research has found to be a key determinant of the forecasting act.

MANAGEMENT FRAUD RISK FACTORS: AN EXAMINATION OF THE SELF-INSIGHT OF AND CONSENSUS AMONG FORENSIC EXPERTS

Over the past two years, fraudulent financial reporting has become a major concern of both the Securities and Exchange Commission and investors. These concerns have been spurred by evidence that several high-profile companies such as Enron, Tyco, WorldCom, and HealthSouth have published false and/or misleading financial reports. Statement on Auditing Standards (SAS) No. 82 specifies that auditors have a responsibility to assess the likelihood of management fraud and identifies specific risk factors that should be considered when making that assessment. Apostolou et al. (2001b) examined how internal and external auditors rate the relative importance of these factors. This study extends Apostolou et al. (2001b) by examining how forensic experts at four Big 5 professional service firms assess the factors specified in SAS No. 82. These assessments produced two different models of relative importance: (a) a statistical model (produced by the Analytic Hierarchy Process); and (b) a subjective model (based on subjects’ assessment of the relative weights). These models are then used to assess the self-insight of and the degree of agreement among the forensic experts. The results indicate that forensic experts have a moderately high degree of self-insight. A moderate to high degree of consensus among experts’ judgments about the relative importance of fraud risk factors was noted.

The probability of earnings-related disclosure as a determinant of predisclosure information production

Abstract Recent analytical research investigates the direct effects of public disclosure on security prices and its indirect impact through its effect on private information production. We contribute empirical evidence on the indirect effect of public disclosure by testing the hypothesis that predisclosure information production is increasing in the probability of a forthcoming disclosure. Using a pair-matched sample of 1,712 certain earnings releases and 1,712 less likely management forecasts from 1982–1986, evidence consistent with the hypothesis is provided. Supplemental tests show that the main result is not affected by cross-sectional differences in management forecast precision and likelihood, nor by the expectation of other earnings-related disclosures during certain times of the year. However, consistent with prior research documenting systematic differences in the relationship between earnings and security prices in the fourth quarter, we find that predisclosure information production before fourth quarter actual earnings releases is not significantly greater than before management forecasts of fourth quarter results.