The influence of accountability on overconfidence and resistance to change: A research framework and experimental evidence

This paper presents a research framework and demonstrates how commitment to a particular course of action might lead to information search that is biased in favour of the chosen alternative. The framework also incorporates accountability as a strategy for mitigating overconfidence and resistance to change.An experiment was conducted to test the predictions of the proposed framework. Results of the experiment indicate that commitment to a particular cost allocation system leads to increased desirability of the chosen system and decreased desirability of the rejected alternative. The results also show that managers who are committed to a particular cost allocation system become too conservative and overconfident in their preferred system, which leads to high resistance to change. These effects, however, were attenuated by making the managers accountable for the negative consequences of their decisions.     

Accountability and auditors’ materiality judgments: The effects of differential pressure strength on conservatism,variability, and effort

This study investigates the effects of differential accountability pressure strength on auditors’ materiality judgments. We evaluate whether incremental levels of accountability (i.e., review, justification, feedback) increase judgment conservatism, decreases judgment variability, and increases effort. One hundred sixty auditors participated in a between-subjects experiment that included a planning materiality task and a proposed audit adjustment materiality task. As predicted, auditors under higher levels of accountability pressure (i.e., justification, feedback) provided more conservative materiality judgments and had less judgment variability than auditors under lower levels of pressure (i.e., review, anonymity). The results also indicate that accountability strength was positively related to the amount of time spent on the task, explanation length, and consideration of qualitative materiality factors. Finally, the results show that use of a planning materiality decision aid influenced the accountability effects for the planning materiality judgment. These judgments were more conservative and less variable when the planning materiality decision aid was available. We consider implications for research, practice, and policy in the context of the study’s limitations.     

Empowerment: the emperor's new clothes

Everyone talks about empowerment, but it's not working. CEOs subtly undermine empowerment. Employees are often unprepared or unwilling to assume the new responsibilities it entails. Even change professionals stifle it. When empowerment is used as the ultimate criteria of success in organizations, it covers up many of the deeper problems that they must overcome. To understand this apparent contradiction, the author explores two kinds of commitment: external and internal. External commitment--or contractual compliance--is what employees display when they have little control over their destinies and are accustomed to working under the command-and-control model. Internal commitment occurs when employees are committed to a particular project, person, or program for their own individual reasons or motivations. Internal commitment is very closely allied with empowerment. The problem with change programs designed to encourage empowerment is that they actually end up creating more external than internal commitment. One reason is that these programs are rife with inner contradictions and send out mixed messages like "do your own thing--the way we tell you." The result is that employees feel little responsibility for the change program, and people throughout the organization feel less empowered. What can be done? Companies would do well to recognize potential inconsistencies in their change programs; to understand that empowerment has its limits; to establish working conditions that encourage employees' internal commitment; and to realize that morale and even empowerment are penultimate criteria in organizations. The ultimate goal is performance.     

Auditor Expertise and the Estimation of Dollar Error in Accounts

A major task that auditors undertake in formulating their audit opinion is to estimate the dollar error that might exist in accounts in light of their evaluation of internal control strengths and weaknesses. The research that has been undertaken to evaluate the quality of auditor performance on this task, however, has produced mixed results. The current study tries to overcome some theoretical limitations and measurement limitations that have undermined prior studies. Forty practising auditors rated their abilities on fourteen characteristics derived from a model of expertise. They then undertook an experiment where they judged the extent of dollar error that might exist in the inventories of a manufacturing company. They based their judgments on working papers provided to them that contained, among other information, an evaluation of the company's internal control system. An estimate of the 'true' dollar error in the inventories was calculated using a program that simulated the company's internal control and accounting system. This estimate was then used to calculate the accuracy of the auditors' judgments. Their ratings on the expertise characteristics were not related to their judgment accuracy. Their ratings were related, however, to their confidence in their judgment accuracy. Auditors who considered themselves more expert at the task were more confident in their judgment accuracy but they were, in fact, no more accurate than auditors who considered themselves to be less expert at the task.     

Fear of feedback

Nobody likes performance reviews. Subordinates are terrified they'll hear nothing but criticism. Bosses think their direct reports will respond to even the mildest criticism with anger or tears. The result? Everyone keeps quiet. That's unfortunate, because most people need help figuring out how to improve their performance and advance their careers. This fear of feedback doesn't come into play just during annual reviews. At least half the executives with whom the authors have worked never ask for feedback. Many expect the worst: heated arguments, even threats of dismissal. So rather than seek feedback, people try to guess what their bosses are thinking. Fears and assumptions about feedback often manifest themselves in psychologically maladaptive behaviors such as procrastination, denial, brooding, jealousy, and self-sabotage. But there's hope, say the authors. Those who learn adaptive techniques can free themselves from destructive responses. They'll be able to deal with feedback better if they acknowledge negative emotions, reframe fear and criticism constructively, develop realistic goals, create support systems, and reward themselves for achievements along the way. Once you've begun to alter your maladaptive behaviors, you can begin seeking regular feedback from your boss. The authors take you through four steps for doing just that: self-assessment, external assessment, absorbing the feedback, and taking action toward change. Organizations profit when employees ask for feedback and deal well with criticism. Once people begin to know how they are doing relative to management's priorities, their work becomes better aligned with organizational goals. What's more, they begin to transform a feedback-averse environment into a more honest and open one, in turn improving performance throughout the organization.     

Professional judgment and accounting standards

This essay explores relationships between accounting standards and people's inferences and judgments. Acknowledging that Demski's impossibility theorem implies that the standards will be “social-preference incomplete”, the paper shows that they are also “decision-procedure incomplete” on three levels. These levels correspond to three kinds of professional judgment: semantic, pragmatic and institutional. The investigation facilitates understanding of (1) how accountants exercise judgment and deduction in applying incomplete standards; (2) how financial statement readers use the incomplete standards to draw deductive inferences from financial reports which are based on accountants' judgments; (3) the special kinds of judgment required of standard setters; and (4) the meaning and extent of professional liability, given the relationships identified between accounting standards, inferences and judgments.     

Early debt extinguishment transactions and auditor materiality judgments: A bounded rationality perspective

Critics have characterized bond refundings and in-substance defeasances as managerial tactics that artificially inflate reported earnings during periods of rising interest rates, and various accounting and auditing pronouncements suggest that such transactions be subjected to more stringent materiality criteria. Extending work that interprets audit judgment formation as a cognitive phenomenon, this study examines hypothesized relationships between materiality judgments and the size and nature of these debt transactions, client earnings trend, and experience of the auditor. Proceeding beyond this cognitive orientation, the study then interprets judgment formation as a social-behavioral phenomenon by examining the applicability of the bounded rationality perspective to auditing. The results obtained from an experiment involving 212 practitioners at the ranks of partner, manager and senior suggest that the size of item, earnings trend and nature of transaction influence materiality judgments, as mitigated by an auditor's experience. Further, quantitative and qualitative, interview-based evidence suggests the usefulness of viewing audit judgment processes as boundedly rational, social-behavioral phenomena.     

The Implementation of Innovative Management Accounting Systems

This paper reports on innovations in management accounting systems (MAS) in three Australian manufacturing enterprises. The study is based on the premise that systems characteristics of the MAS innovations develop in response to triggers for adoption, and the outcomes achieved from the innovative systems will depend on the effective implementation of the costing systems. The MAS innovations implemented include activity-based costing, activity-based management, benchmarking, integrated budgetary system, key performance indicators and balanced scorecards. Five factors influencing the successful implementation of innovative MAS are proposed: commitment to the initiatives; a successful pilot application; incremental development; appropriate training; and integration with other processes and systems.     

Data Fixation and the Use of Traditional Versus Activity-Based Costing Systems

An important debate in the contemporary accounting literature relates to the relative merits of activity-based versus volume-based product costing methodologies. Traditional volume-based costing systems are said to be flawed and may seriously mislead strategic decision making. Such arguments assume that decision makers use such information in an unproblematic way. This article reports on an experiment designed to investigate whether decision makers are able to overcome data fixation in a setting involving the use of product cost information. In response to criticisms of previous accounting studies of data fixation, subjects received some feedback after each decision, and were rewarded based on performance. The experiment involved subjects making a series of production output decisions based on detailed case information of a hypothetical firm facing different market conditions for each decision. A between-subjects design was utilized with two cost system treatments: activity-based costing (ABC) and traditional costing (TC). It was hypothesized that the group provided with ABC cost data would make 'optimal' decisions and the group provided with TC cost data would overcome fixation. The results of the experiment indicated that there was, in general, evidence of data fixation among TC subjects, but a small number of subjects did adjust to ABC costs. These results are discussed in the light of previous research and some future directions are outlined.     

审计判断中代表性启发法下的偏误研究——来自中国的实验证据

心理学研究发现,人们在运用代表性启发法进行概率性判断任务时,会产生忽视基准比率和忽视信息可靠性的偏误。本文以我国注册会计师审计为背景,采用实验的方法,对我国注册会计师在运用代表性启发法进行审计判断时,是否会产生忽视基准比率和信息可靠性的偏误进行了检验。实验结果表明,注册会计师在判断过程中产生了忽视基准比率的偏误,但没有产生忽视信息可靠性的偏误,对可靠性不同的证据比较敏感。