Linda M. Lovata

Auditors as monitors: evidence from discretionary accruals of Laventhol and Horwath clients

Purpose - This paper aims to provide evidence on the hypothesis that auditors differ in how they constrain discretionary accruals (DAs) of their clients. The paper seeks to analyze changes in DAs for clients of Laventhol and Horwath associated with the appointment of a successor auditor. Design/methodology/approach - The study uses regression and archival data to separate a firms accounting accruals into discretionary and non-DAs. The study then examines changes in a firms DAs associated with a change in auditors. Findings - Replacing LH with a new auditor resulted in a statistically significant decrease in DAs. This result is contrary to prior research and could be due to the prior research using voluntary auditor changes where variables such as financial distress and opinion shopping could drive the results. Originality/value - The study provides results that differ from prior research. This study shows that the auditor change is associated with a systematic decline in the level of a firms DAs. The results could be due to the forced nature of this auditor change as opposed to voluntary auditor changes used in prior research.

Revenue and expense recognition cases developed from the accounting and auditing enforcement releases

Abstract This paper presents four revenue and expense recognition cases to be used in the intermediate accounting sequence. The cases are adapted from Accounting and Auditing Enforcement Releases, so they are based on real-world situations. Each case requires students to search accounting databases to find the appropriate pronouncements or other accounting guidance. Students must also synthesize the information to provide compelling arguments for their proposed solutions. The cases can help develop critical thinking skills in unstructured environments while reinforcing key financial accounting concepts.

The use of operant theory in the design of performance reporting systems

Operant theory is a branch of psychology that focuses on reinforcement and punishment. In general, reinforcement is preferred over punishment and a combination of both should be optimal. Outcome feedback can provide either reinforcement or punishment depending on the cues transmitted. Therefore, the receipt of only positive feedback should elicit better task performance than the receipt of only negative feedback. Also, a combination of the two should be the best motivator. A laboratory experiment was designed in which subjects participated in a computer simulation of a raw materials purchasing scenario. Performance was measured by costs incurred and decision speed. The group receiving a variance report when costs were outside of a specified range, both positively and negatively, made the quickest decisions without sacrificing cost performance. Receiving only negative performance reports resulted in the worst task performance. Even though the results of the experiment provide very limited support of operant theory, they do suggest that this theory may be useful in the design of better reporting systems. Also, the results indicate that the most common reporting systems may not be the most effective.