Michael Gibbins

Propositions About The Psychology Of Professional Judgment In Public Accounting

In his fascinating book, The Medusa and the Snail, scientist and humanist Lewis Thomas asserted that the greatest scientific discovery in the past hundred years is that we are profoundly ignorant about nature (Thomas [1979, pp. 74-75]). Thomas explained that realizing how inadequate our scientific models are is fundamentally humbling, is useful in clearing away the stories we have made up to fill the gaps, and is likely to result in serious science and genuine understanding. We do not yet have a good understanding of what happens when experienced people, such as public accountants, use their judgment to make decisions that matter, amid the pressures, constraints, dangers, and opportunities of their everyday environment (Felix and Kinney [1982]). This papers purpose is to tackle the fundamental psychological modeling of what happens when professional judgments form and deci-

An Empirical Exploration Of Complex Accountability In Public Accounting

The purpose of this study is to improve our understanding of the behavior of accountants in public accounting settings, under the force of accountability. To date, accounting and psychology research on the effects of accountability on judgment has been limited in scope. There is little evidence on professional behavior in a realistic accountability setting. We propose an expanded characterization of accountability suitable to the public accounting setting and provide data on that characterization. Full understanding of the behavior of the accountable people requires consideration of contextual factors (Ashton [1990], Johnson and Kaplan [1991], Lord [1992], and Messier and Quilliam [1992]). We use the self-reports of accountants in public accounting firms to incorporate some of the contextual factors associated with accountability in that setting. For instance, individuals in a public accounting firm may be

The Chief Financial Officer's Perspective on Auditor Client Negotiations

Auditor-client negotiation about difficult client accounting issues involves both the auditor and the client. On the client side, the Chief Financial Officer (CFO) plays a central role in the financial reporting process, yet is rarely the focus of academic study. This paper reports how a sample of Canadian CFOs viewed the negotiation process and context, using an experiential questionnaire to build on the negotiation model developed and demonstrated for the auditor side of the negotiation by Gibbins, Salterio, and Webb 2001, and corroborated by a comparison of common questionnaire items across auditor and CFO samples by Gibbins, McCracken, and Salterio 2005. The CFOs saw negotiation with the auditors as a consequence of change in accounting and disclosure standards or personnel influential to their financial reporting, or business changes, such as, new business deals or acquisitions. Negotiation was thrust upon the CFO, and the CFO then had to manage it. The CFOs informed other management (such as the CEO) and was aware of their interests, but did not generally seek their help. Informing the Board or the audit committee of the issue was much less frequent. The issue being negotiated was seen as complex, requiring research and analysis, and dependent on knowledge and expertise, with the result more likely reflecting form over substance (a result some CFOs suggested was more agreeable to the auditor than to the CFO).

Regression And Other Statistical Implications For Research On Judgment Using Intercorrelated Data Sources

This paper is concerned with the empirical study of the following judgment problem. A judge (e.g., an auditor) must make a judgment using data sources that are statistically intercorrelated to some degree. Several sources, of varying intercorrelation, are potentially available, but time pressure, information cost, or other constraints make it prohibitive for the judge to use all potential sources. Hence, the judgment must be based on only a subset of the potential sources. How would the judge take such intercorrelations into account when selecting the subset to be used, and what characteristics of the intercorrelated data source setting are relevant to an empirical understanding of the judges behavior in that setting?

Expertise Management by Public Accounting Firms

This paper constructs a model of professional expertise as an attribute of an accounting firm rather than just an attribute of individual experts. This model leads to the identification of three strategies applicable to accounting firms. A Knowledge firm develops and sells proprietary knowledge to a selective clientele, whereas a Full Service firm develops and sells general professional knowledge to a broad clientele. A Relationship firm is in-between the other two firm types. Associations are hypothesized between these strategies and a variety of firm activities such as client selection, diffusion (or concentration) of expertise within the firm, sharing of expertise within the firm, and formalization of quality control processes. A questionnaire was completed by 219 audit and tax partners and consulting, insolvency and forensic accounting principals in 15 public accounting firms, including the Big Five. Results are consistent with the existence of three distinct types of firms. Results also indicate that partners are aware of local pressures that they personally face (e.g,. need to sell more services to clients) and less aware of the effect of broad structural features of the firm (e.g., size, decision aids). The key structural features that are salient to partners involve need for selectivity in choosing clients, and the need for the firm to develop specialized proprietary technical knowledge.

Beyond-GAAP Corporate Reporting: Insights for Practice and Opportunities for Research

This paper focuses on the increasingly important area of corporate reporting beyond the audited GAAP financial statements and notes. Framed by comments received from Chief Financial Officers (CFOs) and by issues raised in the research literature, the paper investigates the literature and draws conclusions about the value of such reporting and about numerous practical and conceptual issues deserving additional research. Our analysis demonstrates that reporting beyond the GAAP statements is a central part of corporate disclosure and resulting valuation, and is central to the CFOs function, but is currently under-researched. Other prominent issues addressed in this paper include the role of disclosure regulation in influencing useful disclosure, calculating and managing the costs of disclosure, overcoming weaknesses in GAAP, determining what disclosures institutional and other investors need and use, managing relations with analysts, and reducing undesired effects of external disclosure on internal management. Our various extrapolations from limited research support the analysis and also represent research opportunities. The analysis and conclusions consider the perspectives of CFOs, information users, regulators and researchers. Among more than 30 conclusions are that reporting beyond GAAP has incremental value to GAAP, partly derived from its relationship with GAAP; that any increased regulation of beyond-GAAP reporting should focus on disclosure and reconciliation to GAAP rather than on content details in order to preserve reporting of useful firm-specific information; and that though the costs of beyond-GAAP reporting have not been studied, it is cost-effective and likely more so than GAAP reporting. Our intent throughout is to provide useful insights and generate increased interest among CFOs, users and regulators to encourage further research and among researchers to conduct it.