Sandra C. Vera-Munoz

The Effects of Domain Experience and Task Presentation Format on Accountants' Information Relevance Assurance

Information relevance advisory services offer growth opportunities for accountants in CPA firms, but we know little about the types of knowledge needed to provide high-quality advice. In a two-stage experiment, accountants with different management and public accounting experiences (that we suggest lead to different ypes of knowledge) receive task information in alternative formats, and develop relevant information for a clients decision. We find that participants are more likely to choose an appropriate problem representation when they receive an appropriate task format or when they have more management or public accounting experience (stage one). Also, when participants choose an appropriate problem representation, more management accounting experience improves their development of relevant information, but more public accounting experience does not (stage two). Our results suggest that tailored task presentation and domain experience that We acknowledge the helpful comments of Michael Bamber, Lisa Koonce, Bob Libby, Marlys Lipe, Joan Luft, Marjorie Shelley, Geoff Sprinkle, two anonymous reviewers, accounting workshop participants at Cornell University, the University of Georgia, the University of Notre Dame, and the University of Southern California, and participants at the Management Accounting Research 2000 Conference. The authors are indebted to Hadassah Baum, Dick Fremgen, Ken Milani, Fred Mittelstaedt, to the members of the AICPA, auditors from a national accounting firm, and Executive M.B.A. students from the University of Notre Dame who participated in the experiment. We are grateful to JoonMo Ahn, Erica Mielke, and Steven Smyth for their able research assistance. Professor Vera-Mufloz acknowledges financial support by Ernst & Young LLP and Grant Thornton LLP through the Department of Accountancy, University of Notre Dame; Professor Kinney acknowledges financial support by the Center for Business Measurement and Assurance Services at The University of Texas at Austin; and Professor Bonner acknowledges financial support from BDO Seidman, LLP. Submitted September 1999 Accepted February 2001

Exploring the Extent and Determinants of Knowledge Sharing in Audit Engagements

Audit firms are faced with increasing demands for audit efficiency and effectiveness. Increasing knowledge sharing in audit engagements can help them respond to this challenge, and this study seeks to advance understanding of the extent and determinants of such sharing. Data collected from auditors of two Big Four audit firms suggest that both firms have high, but far from complete, levels of knowledge sharing. The factors identified as affecting such sharing range from characteristics of the client to attributes of the audit firm, audit team and individual auditors. A framework is proposed for organizing these factors and relationships.

Capital Market Expectations of Risk Materiality and the Credibility of Managers’ Risk Disclosure Decisions

Research shows the capital market can refine firm risk inferences using Form 10-K risk disclosures, raising the question: do managers’ disclosure decisions credibly reflect their private risk materiality assessments? We use experts’ judgments about industry-level risk materiality to impute market expectations of climate-change risk (CCR) materiality to test whether the association between disclosing CCR in 10-K’s and firm risk (proxied by cost of equity (COE)) varies with market expectations. Using S&P 500 firms’ CCR disclosures over nine years, we find that disclosing firms’ COE is 26 bps lower than nondisclosers overall. In industries where the market expects CCR to be material, disclosing firms’ COE is 51 bps lower than nondisclosers, while in industries where the market expects CCR not to be material, disclosing firms’ COE is 20 bps lower than nondisclosers. Our results indicate that market CCR materiality expectations allow inferences about the credibility of managers’ risk disclosure decisions.

To Disclose or Not to Disclose Climate-Change Risk in Form 10-K: Does Materiality Lie in the Eyes of the Beholder?

We examine the relation between managers’ decisions whether to disclose climate-change risk (CCR) in Form 10-K and firm risk. Ambiguity about the materiality of CCR and the SEC’s inconsistent enforcement of CCR disclosures cause uncertainty about whether disclosing CCR is mandatory or voluntary. We hand-collect data over a seven-year period from about 3,000 Form 10-K filings of S&P 500 firms on whether they disclosed CCR. We use SASB’s Materiality Map™ to proxy for report users’ judgments of the materiality of CCR. We find that the cost of equity (COE) of disclosing firms is 21.3 bps lower than the COE of non-disclosing firms. More importantly, we find that for firms where report users judge CCR as material, the COE of disclosers is 49.1 bps lower than that of non-disclosers. In contrast, we find no association between disclosing CCR and COE for firms where report users judge CCR as not material.