Sarah E. Bonner

The effects of monetary incentives on effort and task performance: theories, evidence, and a framework for research

Abstract The purpose of this paper is to review theories and evidence regarding the effects of (performance-contingent) monetary incentives on individual effort and task performance. We provide a framework for understanding these effects in numerous contexts of interest to accounting researchers and focus particularly on how salient features of accounting settings may affect the incentives-effort and effort-performance relations. Our compilation and integration of theories and evidence across a wide variety of disciplines reveals significant implications for accounting research and practice. Based on the framework, theories, and prior evidence, we develop and discuss numerous directions for future research in accounting that could provide important insights into the efficacy of monetary reward systems.

A model of the effects of audit task complexity

Abstract A model is proposed for examining the effects of audit judgment performance. The model is developed from a review of literatures in accounting, management, and psychology. Seven testable propositions are derived. Using the model, previous audit judgment research on ratio analysis and going-concern concern evaluations is reanalyzed to examine the relation between task complexity and judgment performance, while controlling for the possible interactive effects of skill. For these tasks, increases in (task complexity/skill) are related to decreases in judgment performance. However, for the ratio analysis task, this relation is driven primarily by skill.

Expertise in Corporate Tax Planning: The Issue Identification Stage

*University of Southern California; tUniversity of Colorado at Boulder. We would like to thank Gilbert Bloom of KPMG Peat Marwick, Bob Rosen of Ernst & Young, Wayne Gazur, Robert Jamison, Sally Jones, Stewart Karlinsky, and David Mason for their assistance in validating the instruments; Eugene Willis and the AICPA for allowing us to collect data at the National Tax Education Program; Stephen Conrad of Arthur Andersen, John Lanning of KPMG Peat Marwick, Jerry Marrs of Ernst & Young, and Randy Stein of Coopers & Lybrand for allowing us to collect data at their respective firms; Minou Bohlin, Linda Levy, David Mason, and Paul Walker for their research assistance; and Vairum Arunachalam for his assistance in collecting data. The authors also gratefully acknowledge the helpful comments of three anonymous referees, Alison Ashton, Robert Ashton, C. Brian Cloyd, David Frederick, Joan Luft, Robert Libby, Laureen Maines, Mark Nelson, Michael Roberts, Frank Selto, D. Shores, Ira Solomon, Rick Tubbs, S. Mark Young, and workshop participants at Arizona State University, Cornell University, Duke University, Indiana University, the University of Illinois Tax Symposium, the Journal of Accounting Research Conference, University of Texas at Arlington, University of Utah, and University of Wisconsin. Finally, the financial support of the KPMG Peat Marwick Foundation and the University of Colorado is gratefully acknowledged. 1 We infer expertise in this study from the level of performance in a specific task, here issue identification in tax planning. This inference is consistent with much of the literature on expertise in accounting and other disciplines (e.g., Bonner and Lewis [1990],

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

Audit category knowledge as a precondition to learning from experience

Abstract Prior research indicates that inexperienced auditors lack knowledge of basic auditing categories (e.g. transaction cycles, audit objectives), instead developing this knowledge over time. As a consequence, learning from early experiences may be hampered because these experiences are not stored with respect to the category structures that are needed for important audit decisions. We performed an experiment which demonstrates that: 1. (1) providing transaction cycle and audit objective category knowledge through instruction prior to experience facilitates one particular type of subsequent learning from experience learning of category-level error frequencies), and 2. (2) this learning advantage cannot be duplicated by providing listings and explanations of category memberships after experience. In addition, actual experience consequently has a greater influence on later audit decisions when category knowledge is acquired prior to experience.

Prepopulating Audit Workpapers with Prior Year Conclusions: Default Option Effects on Risk Assessment Accuracy and the Backfiring of Guidance

We conduct an experiment examining the effect of prepopulation (automatic copying of prior year conclusions into current year workpapers) on auditors’ accuracy at risk assessment. Theory on default options integrated with an understanding of the audit environment motivates predicting that prepopulation (versus blank workpapers) decreases accuracy at assessing risks that have changed, by triggering inferences that it is acceptable to “stick with last year” and that efficiency is preferred. Process testing shows reduced (improved) accuracy for increasing and decreasing (no change) risks occurs partially due to “stick with last year” processing. For increasing risks, “efficiency later” processing (auditors choosing risk ratings favoring efficiency in later substantive testing) also reduces accuracy. For decreasing risks, “efficiency now” processing (investing less effort in assessing risks) also reduces accuracy. PCAOB guidance admonishing against overreliance on prior year conclusions creates inferences that run counter to those from prepopulation, creating reactance and thus exacerbating the negative effects of prepopulation. Process testing shows that this “backfiring” effect reflects auditors with prepopulated workpapers investing even less effort in the risk assessment task under guidance. However, auditor characteristics predictive of personal preferences countering the inferences from prepopulation are somewhat more successful at counteracting its negative effects. These findings should be of interest to audit firms and regulators.We conduct an experiment in which we examine the impact of prepopulation of audit workpapers (the automatic copying over of prior year audit work into current year workpapers) on auditors’ accuracy at risk assessment. We meld psychology theory on default options with key features of the audit environment to develop predictions that prepopulation, compared to leaving current year workpapers blank, harms auditors’ accuracy at assessing risks that have increased or decreased since the prior year, but improves auditors’ accuracy at assessing risks that are unchanged from the prior year. Process testing reveals that these results occur because prepopulation prompts auditors to adopt decision strategies consistent with goals of inaction and efficiency. Finally, while providing skepticism-inducing guidance not to over-rely on the prior year attenuates prepopulation’s activation of the efficiency goal, the inaction goal is impervious to the guidance intervention, and guidance does not alter prepopulation’s negative effects on auditors’ accuracy.