Kevin T. Stevens

Factors that Influence the Moral Reasoning Abilities of Accountants: Implications for Universities and the Profession

The need to maintain the public trust in the integrity of the accounting profession has led to increased interest in research that examines the moral reasoning abilities (MRA) of Certified Public Accountants (CPAs). This study examines the MRA of CPAs practicing in small firms or as sole practitioners and the factors that affect MRA throughout their working careers.The results indicate that small-firm accounting practitioners exhibit lower MRA than expected for professionals and that age, gender and socio-political beliefs affect the moral reasoning abilities of small-firm practitioners. We also find that completion of an ethics course in college has a positive impact on MRA. Also, the survey respondents indicate overwhelming support for including ethics courses within the business curriculum. Finally, the fact that those accountants with the lowest MRA are the least supportive of ethical training may indicate the need for mandatory, rather than optional, training in ethics both in university and Continuing Professional Education courses.

Corporate Lobbying Behaviour on Accounting for Stock-Based Compensation: Venue and Format Choices

This article investigates U.S. corporate lobbying of the Financial Accounting Standards Board (FASB) in the U.S. on the exposure draft to Financial Accounting Standard No. 123 (FAS 123), Accounting for Stock‐Based Compensation. Essentially, firms lobbied the FASB in one of three ways: (a) against disclosure/recognition of any additional information beyond that already required in U.S. proxy statements, (b) for summary footnote disclosure of all employee stock‐based compensation (SBC), or (c) for either pro forma or formal income statement recognition of all employee SBC. This study finds that the higher the level of the SBC of the top five executives, the less likely firms are to favour disclosing that information. This finding supports the hypothesis that economic self‐interests motivated lobbying behaviour on FAS 123. Furthermore, the study finds that U.S. corporations lobby against disclosure of executive SBC in the annual reports even when the annual reports would disclose no additional information beyond that currently disclosed in proxy statements. This is evidence that managers perceive that the venue of disclosure (proxy versus annual report) matters. It is posited that managers lobbied against disclosure of SBC to avoid possible changes to compensation contracts which in turn could adversely affect stock prices. In sum, the results support the notion that managerial self‐interest affects lobbying behaviour on the venue as well as the format of disclosure.

An Exploratory Analysis of Textbook Usage and Study Habits: Misperceptions and Barriers to Success

The authors explore how and to what extent students use their textbooks. Data was collected through a survey regarding when reading is primarily done, how the textbook is used for studying, and which specific study strategies the students used. The results indicate that students know it is important to read, know the professor expects them to read, and know it will impact their grade, yet most students still do not read the textbook. Finally, we also examine what students feel would motivate them to increase their usage of the textbook.

An international comparison of ethical reasoning abilities: Accounting students from Ireland and the United States☆

Abstract Accountants are often confronted with ethical decisions. Yet, some prior research indicates that both public accountants and accounting students in the U.S. may not have as high a level of moral reasoning as other professionals. One measure of moral reasoning ability is the Principled score, or P score, as determined by the Defining Issues Test. Prior research on accounting professionals and students using this measure has largely been confined to the U.S. This study compares the ethical reasoning abilities of American and Irish accounting students. We find that the mean P scores of American and Irish students are similar. However, gender and liberal/conservative attitudes are significant explanatory variables for moral reasoning ability across countries. In addition, our results show that students do correctly self-assess their moral reasoning abilities. We also find that those students with the lowest levels of moral reasoning abilities are the least likely to favor required ethics training in accounting programs. This may imply that students most in need of ethical training are less likely to seek this training.

A response to “measuring readability: A comparison of accounting textbooks”

Abstract In a recent article in the Journal of Accounting Education, Flory, Phillips, and Tassin use several formulas to measure the readability of accounting textbooks. Flory et al. describe an alternative measure of readability, the cloze procedure, as relatively less valid and reliable than readability formulas. This article compares readability formulas to the cloze procedure and reports why experts in reading not only consider readability formulas to be inappropriate measures of adult reading comprehension but also why the cloze procedure is the method of choice in assessing adult readers.

Evidence on the extent of training in teaching and education research among accounting faculty

Abstract The Accounting Education Change Commission and others encourage accounting teachers to become versed in educational research and admonishes accounting programs to train their accounting doctoral candidates to be effective teachers. This article has two primary objectives. First, it determines whether current accounting faculty are well-trained in educational research methodology. Second, it ascertains whether doctoral programs in accounting are training the next generation of faculty in effective teaching techniques. The results indicate that accounting faculty are not well-trained in educational methodology and that very few accounting doctoral programs provide in-depth training to candidates on effective teaching methods.

Assessing the Readability of Government Accounting Standards: The Cloze Procedure

Studies assessing the readability of business writing typically use either readability formulas or, less often, the cloze procedure. This study argues that the cloze procedure, rather than a formula, is the appropriate method of assessing the readability of business writing and uses the cloze procedure to determine the readability of a statement issued by the Governmental Accounting Standards Board (GASB). The GASB provides authoritative statements on the accounting required for local and state governments and agencies. The results indicate that one important GASB statement is unreadable by college-level readers. If this and other GASB statements are unreadable by the users of GASB pronouncements, the GASB may not be fulfilling its role of communicating governmental accounting principles.

The FASB's cost/benefit constraint in theory and practice

The FASB in its Conceptual Framework has set high principles in the ethics of standard-setting in accounting. This paper concentrates on what the FASB calls the cost/benefit constraint, i.e., the commitment to setting an accounting standard only when the benefits of the standard exceeds the costs of that standard toall stakeholders. This constraint is supposed to take precedence over other concerns, such as neutrality (freedom from bias) of account information.The major conclusion of this paper is that a conflict exists between the FASBs commitment and its practice. There is no evidence that the FASB has always made a costs and benefits judgement with respect to proposed standards. In the cases when such a judgement is made, the FASB discounts social costs; therefore, it is not considering costs to all stakeholders. At the same time the FASB discounts social costs, it seems to have an undue concern for standards that do not increase the volatility of net income. The Conceptual Framework explicitly defines costs as the costs to society as a whole.

The effects of comprehensive income on investors’ judgments

Purpose - – This paper aims to understand the effects of different presentation formats on nonprofessional investors’ judgments. Both International Financial Reporting Standards and US Generally Accepted Accounting Principles require an entity to present items of net income and other comprehensive income (OCI) either in one continuous or in two separate, but consecutive, statements but limited understanding exists about their differential effects on evaluation of company performance. Design/methodology/approach - – To investigate this research question, we used a two (Financial Position) x two (Format) randomized between-subjects experiment. Ninety-four graduate students assumed the role of investor and participated in this study. Findings - – Results of the experiment suggest that participants are more likely to incorporate OCI information presented in the one-statement format than in the two-statement format. Further analysis suggests that participants both assign more weight to OCI and perceive OCI to be relatively more important in the one-statement format than in the two-statement format, especially when the entity suffers an economic loss. Originality/value - – Results from this study provide evidence to the Financial Accounting Standards Board and International Accounting Standards Board that should be useful in evaluating the effectiveness of alternative comprehensive income reporting formats and should be of interest to accounting rule-making bodies, investors, publicly traded entities and financial analysts, among others.

The joint effects of management incentive and information precision on perceived reliability in fair value estimates

Purpose - – The purpose of this paper was to examine whether a less precise (or imprecise) estimate may increase investors’ confidence and improve investors’ perceptions of fair value reliability. The main criticism of fair value accounting has been its lack of reliability perceived by investors. Design/methodology/approach - – A 2 × 3 randomized experiment was used where management incentive and information precision are manipulated. Findings - – The results from this study indicate that perceived reliability is jointly affected by management’s incentives and information precision. Reliability rating is the highest for fair value stated as a point estimate with a specified confidence level attached to it. Further analysis indicates that higher perceived reliability is related to its representational faithfulness because participants perceive that a point estimate with a specified confidence level better matches uncertainty in measuring future cash flows. Originality/value - – This is the first study to examine whether a less precise (or imprecise) estimate may increase investors’ confidence and improve investors’ perceptions of fair value reliability. Because of the subjectivity and uncertainty in fair value estimates, less precise fair value estimates may not be viewed as less reliable. In fact, using a precise format to represent fair value estimates may not be appropriate (neither reliable nor credible), because a precise point estimate fails to capture its underlying uncertainty in future cash flows. A less precise format could represent a credible choice for fair value because it reflects uncertainty and subjectivity and effectively communicates management’s assessments of variability in future cash flows.