Liquidate Or Trade Out? An Expert System To Explain The Decision Process

The decision to liquidate or trade out a company in financial distress requires considerable judgment by a provisional liquidator or administrator. While some general procedures and guidelines are available, there is no explicit framework to assist a provisional liquidator or administrator in making a recommendation to liquidate or trade out. This paper reports on the development of an expert system as a method of studying the judgments made by provisional liquidators or administrators in cases of corporate financial distress. The results reveal the major factors that are assessed in making a liquidate or trade-out decision, and support recent calls for expanding the type of information provided by traditional accounting systems.     

Teaching note: Traditional and activity based costing systems

A significant portion of the current managerial accounting literature contrasts the benefits and importance of activity based costing (ABC) systems with the more traditional cost accounting systems. This paper questions this tendency of making such a stark contrast, by placing ABC systems within a wider cost accounting framework. Initially, the framework is developed by providing an overview of the product costing, control and decision making process. Also outlined are the various costing systems in terms of their objectives, advantages and deficiencies. A schema for integrating the costing process with decision making and performance evaluation criteria is then conceptualized. The role of ABC is recognized and integrated within this framework. The link between ‘traditional’ and ABC systems is also studied via an analysis of the conventional wisdom in some of the leading texts in managerial accounting. The analysis demonstrates that there is still much ambiguity in both the contrasting and the linking of ABC with the more traditional costing systems.     

Learning to organise risk management in organisations: what future for enterprise risk management?

This paper identifies recurring issues in the regulation of new technologies through an historical review of the risk management of automobiles in the 1800s. Parallels are drawn between the regulation of early automobiles and that of the regulation of Unmanned Aircraft Systems (UASs) today. It is found that many of the regulatory challenges facing UASs are analogous to those which faced the automobile industry more than a century and half ago and that the need for informed and objective decision making in policy development is reinforced. A systems engineering approach, based on general systems theory and decision‐based design principles, is then proposed as a means for improving the objectivity, transparency and rationality in the risk management decision making process. An example risk management decision making scenario is given within the context of a small UAS operating over a populated area. The results obtained from this case study illustrate how even simple analysis can support the decision making process and highlights some of the potential challenges in the regulatory approach currently applied to UASs.     

Impact of intelligent decision aids on expert and novice decision-makers' judgments

Businesses have invested tremendous resources into intelligent decision aid development. A good match between user and aid may improve the expert decision‐maker's decision quality. However, novices may be prone to poorer decision‐making if intelligent decision aids are more expert than the user. The present paper provides an empirical test of the impact of decision aids on subjects with differential expertise levels. The results support the contention that intelligent decision aids aggravate bias in novices’ decision‐making but mitigate bias in experts’ decision‐making processes. Intelligent decision aids may be best viewed as complements to expert decision‐makers during complex problem analysis and resolution.     

The development of an expert system for managerial evaluation of internal controls

Both practitioners and researchers have devoted signi?cant effort to the study of decision aids, especially expert systems, to assist auditors in internal control evaluations. In addition to being used as a decision aid, researchers have long contended that expert systems could be used to train non‐expert users. Even though the professional accounting literature makes it clear that responsibility for maintaining an effective internal control system rests with management rather than auditors, the focus to date has been on expert systems aimed at assisting/training auditors, not an organization's management. In contrast, this study focuses on management as users of an expert system for internal control evaluation. We describe the development process, explain how the resulting system was evaluated, and discuss results of that evaluation. These results suggest that such a system gives a new way to help managers increase effectiveness and ef?ciency of a critical organizational process: the evaluation of internal controls. Copyright © 2004 John Wiley & Sons, Ltd.     

Integration of Intelligent Systems and Conventional Systems: Requirements for Co-ordinating Multiple Agents for Diagnostic Decisions

This paper describes the development of an integrated intelligent (expert) system and conventional information system to support decision making of a diagnostic decision in a multi-agent environment. It argues that many a priori requirements for the information system can be elicited by accounting for the specific nature of the diagnostic decision and for the single/multiple-actor environment. This finding is generalized to a framework that indicates that a priori requirements take into account the basic theories on which the information system supporting the decision task is ultimately based. In particular, attention is focused on the nature of the task (e.g. diagnostic), whether the application is for a single- or multiple-agent situation and the nature of the multi-agent structure (e.g. product or functional form of organization).     

Reliability rating and reflective questioning: a case study of extended review on Australia's risk assessment of Bt cotton

The governance of emerging technologies is frequently constructed around risk assessment processes. However, when risk assessment as a decision‐making tool is applied to controversial fields such as genetic modification, stem cell research and nano‐scaled science and technology, inherent uncertainties and conflicting social values arise to challenge the adequacy of traditional approaches. In this paper, I propose a framework through which risk assessments may be exposed to a process of ‘extended review’, incorporating both natural and social science quality criteria and modes of reflection. I call this framework ‘Reliability Rating and Reflective Questioning’. The framework is developed through a detailed case study review of a particular risk assessment document. The case study risk assessment reviewed in this paper is that performed by an Australian governmental authority on the impact of genetically modified ‘Bt’ cotton on non‐target organisms. Through highlighting errors, misrepresentations, assumptions and embedded value judgements within the risk assessment document, I argue that the framework of ‘Reliability Rating and Reflective Questioning’ can serve as a useful tool for gauging and improving the quality of risk assessment, especially when used as a decision‐making tool for emerging technologies with high levels of uncertainty and strongly conflicting values.     

Using Organizational Architecture to Lead Change

Effective leadership involves more than developing and communicating the right strategic vision for the company. To encourage employees to carry out the corporate vision, companies must ensure consistency among the following three main components of their organizational architecture: (1) the allocation of decision‐making authority; (2) performance measurement systems; and (3) reward systems. The authors illustrate the application of this framework with the case of Xerox's (eventually) successful attempt to create a customer‐oriented workforce in the 1980s. But a more effective demonstration of the importance of these principles, as the authors go on to suggest, might well be the same company's well‐known failure to harvest the commercial promise of the many inventions by its research group in Palo Alto, one of which became the basis for Steve Jobs' success at Apple. This organizational framework is especially useful for evaluating the likely effects of major corporate initiatives such as “Six Sigma” or the “Balanced Scorecard.” For example, it could be used to help top management determine whether, and under what circumstances, decentralization is likely to improve decision‐making and performance, as well as the changes in the firm's performance management and incentive systems that would be required to make decentralization work. Finally, the authors apply the framework to another important leadership issue: corporate ethics. Since the scandals of the early 2000s and the passage of Sarbanes‐Oxley, many, if not most, U.S. companies have issued formal codes of conduct, appointed ethics officers, and instituted training programs in ethics. But a key question for top management is whether the incentives established by the company's organizational architecture reinforce or undermine the code of conduct. Ensuring consistency in organizational design is an important leadership function—one that is critical to encouraging ethical behavior as well as the pursuit of shareholder value.     

A Collaborative Multi‐criteria Decision Making Technique for Risk Factor Prioritization

Organizations are a collection of individuals, and often a disastrous organizational accident involves contributions from several technical/environmental factors and actors throughout the system over time. This paper illustrates the efficiency of a new collaborative decision making technique that could assist a group of executive decision makers in identifying, analyzing, evaluating and prioritizing significant organizational system risks. The results from the collaborative technique when applied to real world risk intensive situations, such as aviation safety risk management, are compared with those obtained by using existing notable techniques. For the case examples shown, the number of expert judgments is reduced by up to 80%. Advantages and limitations of the proposed modeling approach for collaborative decision making are discussed.     

A generalized probability framework to model economic agents' decisions under uncertainty

The applications of techniques from statistical (and classical) mechanics to model interesting problems in economics and finance have produced valuable results. The principal movement which has steered this research direction is known under the name of ‘econophysics’. In this paper, we illustrate and advance some of the findings that have been obtained by applying the mathematical formalism of quantum mechanics to model human decision making under ‘uncertainty’ in behavioral economics and finance. Starting from Ellsberg's seminal article, decision making situations have been experimentally verified where the application of Kolmogorovian probability in the formulation of expected utility is problematic. Those probability measures which by necessity must situate themselves in Hilbert space (such as ‘quantum probability’) enable a faithful representation of experimental data. We thus provide an explanation for the effectiveness of the mathematical framework of quantum mechanics in the modeling of human decision making. We want to be explicit though that we are not claiming that decision making has microscopic quantum mechanical features.     

A real options approach for evaluating the implementation of a risk-sensitive capital rule in banks

I evaluate a bank's incentives to implement a risk-sensitive regulatory capital rule. The decision making is analyzed within a real options framework where optimal policies are derived in terms of threshold levels of credit risk. I provide a numerical example for the implementation of internal ratings based models for credit risk (the IRB approach) under the new Basel Accord (Basel II).     

Effects of the use of control systems

This research explored the moderating effects of subordinate participation in decision making and subordinate job difficulty on their responses to different uses of control systems by their superiors. In a sample of managers from a moderately large U.S. organization, both of these factors were found to moderate the ways subordinates responded to the perceptions that their superiors used control systems for goal setting, evaluation, problem solving, and contingent reward allocations.The results of the study indicated that the use of control systems for contingent reward allocation produced defensive subordinate responses under all conditions, but also produced the functional response of effort when subordinate participation was low and job difficulty high. The use for goal setting appeared to result in functional responses when subordinate participation was high, and in dysfunctional responses when participation was low. The use for evaluation and the use for problem solving both seemed to be aspects of a collaborative developmental use of the control systems. This use pattern appeared to have primarily functional effects, although the results were more functional when the subordinate jobs were not difficult, and when they participated in decision making. Based on the results several propositions are formulated for future testing.     

Experiences with EXGAME: an expert system for playing a competitive business game

This paper looks at expert systems in management, by using a business game as an experimental vehicle. An expert system called EXGAME was developed to play a business game, which is normally played by students, with minimal human intervention. This paper concentrates on the effectiveness of EXGAME as compared with human players for tasks at different levels. EXGAME was able to replace human players in decision making at the operational level, and indeed outperform them. However, it proved to be impractical to replace human input at the strategic level. The paper also sheds some light on the problems of trying to build an expert system when there is no real expert. A combination of a modular knowledge-base structure and a process of ‘learning by experimentation’ was effective in this case; it is suggested that this may be an appropriate development strategy in other similar situations. © 1998 John Wiley & Sons, Ltd.     

Management accounting and integrated information systems: A literature review

In order to further advance research within management accounting and integrated information systems (IIS), an understanding of what research has already been done and what research is needed is of particular importance. The purpose of this paper is to uncover, classify and interpret current research within management accounting and IIS. This is done partly to identify research gaps and propose directions for future research and partly to guide researchers and practitioners investigating and making decisions on how to better synthesise the two areas. Based on the strengths of existing frameworks covering elements of management accounting and IIS a new and more comprehensive theoretical framework is developed. This is used as a basis for classifying and presentation of the reviewed literature in structured form. The outcome of the review is an identification of research gaps and a proposal of research opportunities within different research paradigms and with the use of different methods.     

Case-Based Reasoning: Application Techniques for Decision Support

Decision-support systems can be improved by enabling them to use past decisions to assist in making present ones. Reasoning from relevant past cases is appealing because it corresponds to some of the processes an expert uses to solve problems quickly and accurately. All this depends on an effective method of organizing cases for retrieval. This paper investigates the use of inductive networks as a means for case organization and outlines an approach to determining the desired number of cases—or assessing the reliability of a given number. Our method is demonstrated by application to decision making on corporate tax audits.     

The Economics of Organizational Architecture

Drawing on the work of Michael Jensen and William Meckling, the co‐formulators of “agency cost theory,” the authors argue that there are two main challenges in designing the structure of organizations: (1) the “rights assignment” problem—that is, ensuring that decision‐making authority is vested in managers and employees with the “specific knowledge” necessary to make the best decisions; and (2) the “control” or “agency” problem—designing performance‐evaluation and reward systems that give decision‐makers strong incentives to exercise their decision rights in ways that increase the long‐run value of the organization. The authors provide a number of instructive applications and extensions of the Jensen‐Meckling organizational framework. Using a series of short case studies that range from the Barings Brothers' debacle in the early 1990s and the decade‐long restructuring of ITT to the cases of McDonald's and Century 21, the authors demonstrate the importance of designing performance‐measurement and reward systems that are consistent with the assignment of decision rights. In so doing, the authors also work to dispel the widespread notion, popular among advocates of Total Quality Management, that the widespread use of performance measures and incentives undermines efforts to promote teamwork within large organizations. A number of brief case histories of companies like Xerox and Mary Kay Cosmetics are used to show the critical role of performance measurement and individual rewards in reinforcing a quality‐centered corporate culture. As the authors conclude, “It is a mistake to think of the ‘soft’ and ‘hard’ aspects of organizations as mutually exclusive or even as competing.”     

The impact of professional standards on accounting judgments: The role of availability and comparative information

Given scant research on the influence of the AICPA’s Code of Conduct, this study examines the effects of professional standards for advocacy and integrity on a financial reporting decision. Based on the availability and priming literature, we test whether the current wording of two AICPA professional standards influence financial reporting decisions. Prior accounting research has documented cases where professionals were inclined toward a conservative or skeptical bias (Francis & Krishnan, 1999; Jenkins & Lowe, 1999) while other studies have documented an inclination toward a client-confirming bias (Hackenbrack & Nelson, 1996; Roberts, 2010). Our study examines whether using AICPA ethical standards as primes results in a neutral, unbiased financial reporting decision in a context in which there is substantial, yet inconclusive, evidence. Roberts (2010) documents the tendency for professionals to view integrity and advocacy as segregated objectives: one for promoting unbiased reporting, associated frequently with accounting-related decisions, and the other condoning client advocacy, typically associated with tax-related judgments. Hence, we test for availability effects based on separately-stated standards. However, the literature on comparative analysis explains that a combined concept containing counterbalancing features allows the participant to form causal relationships between the distinguishing components. This type of mental process brings the causal knowledge into working memory. Hence, a joint presentation of countervailing standards should result in a more balanced judgment, reflecting neither a conservative nor pro-client tendency.The psychology literature suggests that heuristics, such as availability priming and comparative analysis, are more likely to affect novice decision makers (e.g., jurors, clients, new hires, students) than experts whose work experiences could drive the results. This study examines the responses of upper-level accounting majors, and the results show that the participants are inclined toward conservative decision making. Participants exposed to a separately-stated standard for integrity respond conservatively, just as they do in a control group without explicit access to the professional standard. Similarly, even when exposed to AICPA Rule 102-6 allowing client advocacy, they report conservatively. In contrast, when the prime is a joint presentation of the standards, participants respond with an unbiased decision, which differs significantly from the consistently conservative response by the control group as well as by the participants primed with an isolated standard. We conclude that two AICPA standards (as currently worded) are best understood when they are aggregated. Whether this finding holds for professionals is an empirical question for future research. The implication is that accountants’ decision making could be enhanced by a revised professional standard reminding them to jointly consider the goals of unbiased decision making and justifiable client advocacy.     

The effects of decision aid structural restrictiveness on cognitive load,perceived usefulness,and reuse intentions

As accounting environments become increasingly automated through information technology support systems, the underlying systems are increasingly restrictive in an effort to direct user behavior and decision making. However, consistent with the theory of technology dominance, restrictive systems have been found to dominate users' decision processes and to have a detrimental effect when decisions require knowledge from outside the system's capability. This study expands upon this research through an examination of users' preferences for more (less) restrictive systems based on their own level of domain knowledge. Incorporating theory on task technology fit, we theorize that users with less knowledge will prefer to be dominated by the system, while users with greater levels of knowledge will prefer a system that provides the user with a level of control over the decision process rather than submitting entirely to the decision aid's control. These theorizations are empirically tested through an experimental design that varies the level of systems restrictiveness across groups of novice and experienced participants. The results confirm that novice (experienced) participants find a highly restrictive system substantially (minimally) reduces cognitive load, increases (decreases) usefulness of the decision aid, and strengthens (weakens) the intention to reuse the system in the future. The results add an important piece to understanding the effect of restrictive systems in that the users that are most susceptible to dominance by decision aids are the users most willing to adopt a restrictive system that reduces the effort they must put forth and in turn reduces the knowledge they accrue from using the system.