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A content analysis of CPA firms’ correspondence following PCAOB inspections: 2004–2010

The Public Company Accounting Oversight Board (PCAOB) has conducted well over 1000 inspections of public accounting firms since 2004, the year their inspections began. The PCAOB inspections are mandated by the Sarbanes–Oxley Act of 2002, and are designed to promote high professional audit standards and improve the audit quality of registered public accounting firms (U.S. House, 2002). Since then, a growing body of research has emerged focusing on the process, results, and decision implications of the inspections. Most of the research to date has focused on determining the impact of the inspection regimen from the perspective of regulators, clients, or markets, but there has been very little research focused on the effect of inspections on the accounting firms themselves.We evaluate the letters provided by triennial audit firms (100 or fewer issuer clients) to the PCAOB in response to their inspections. The response letters provide insight into what the firms themselves think about the value of the inspection and the results of the inspections. Our study and its findings are particularly timely in light of the PCAOB Chairman James Doty’s recent speech (Doty, 2011) in which he claimed that deficiencies were concrete instances of audit failure, and sharply criticized the responses of many audit firms who received inspection deficiency reports, most of whom maintain that their deficiency finding resulted from either differences in professional judgment or inadequate documentation, or both (but not audit deficiencies).We find that a majority of firms writing response letters (1) state they support the PCAOB’s objective of improving audit quality and (2) believe the inspection process will lead to higher audit quality. However, a substantial majority of firms that had an audit engagement deficiency disagreed with the PCAOB’s evaluation, citing differences in professional judgment and/or documentation issues. Our findings do not support but run counter to the PCAOB Chairman’s criticisms and insistence that inspection deficiencies are not attributable to professional judgment differences.     

Why does firm reputation in human resource policies influence college students? The mechanisms underlying job pursuit intentions

Business periodicals, such as Fortune magazine, rank organizations in lists such as the “Best Companies to Work For,” providing applicants with information about firms' human resource practices, including pay, benefits, work‐life, and diversity practices. It is not clear what influence this reputational information about HR practices has on applicant interest in pursuing employment or, more important, why it does so. Given that firms invest substantial resources in HR practices to vie for positions on these lists, the current study sought to fill these gaps in the literature. In the 2 (compensation) × 2 (work‐family) × 2 (diversity) factorial design, 232 college students read about magazine rankings in which a firm's reputation in each HR practice was manipulated as ranking either high or low relative to competitors. We examined perceptions of organizational prestige, anticipated organizational support, and anticipated role performance as mechanisms that explain the influence of HR practice reputation on job pursuit intentions. Our results indicate that a firm's reputation in compensation, work‐family, and diversity efforts increase college students' intentions to pursue employment with a firm. They do so because college students perceive that the organization is prestigious, will be supportive, and will foster their job performance. Our results suggest that a strong employer brand derived from employee‐centered HR practices is important for recruiting college students. © 2012 Wiley Periodicals, Inc.     

Portfolio Diversification Effects of Downside Risk

Risk managers use portfolios to diversify away the unpricedrisk of individual securities. In this article we compare thebenefits of portfolio diversification for downside risk in casereturns are normally distributed with the case of fat-taileddistributed returns. The downside risk of a security is decomposedinto a part which is attributable to the market risk, an idiosyncraticpart, and a second independent factor. We show that the fat-tailed-baseddownside risk, measured as value-at-risk (VaR), should declinemore rapidly than the normal-based VaR. This result is confirmedempirically.     

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Kaggle forecasting competitions: An overlooked learning opportunity

We review the results of six forecasting competitions based on the online data science platform Kaggle, which have been largely overlooked by the forecasting community. In contrast to the M competitions, the competitions reviewed in this study feature daily and weekly time series with exogenous variables, business hierarchy information, or both. Furthermore, the Kaggle data sets all exhibit higher entropy than the M3 and M4 competitions, and they are intermittent.In this review, we confirm the conclusion of the M4 competition that ensemble models using cross-learning tend to outperform local time series models and that gradient boosted decision trees and neural networks are strong forecast methods. Moreover, we present insights regarding the use of external information and validation strategies, and discuss the impacts of data characteristics on the choice of statistics or machine learning methods. Based on these insights, we construct nine ex-ante hypotheses for the outcome of the M5 competition to allow empirical validation of our findings.     

Exploiting tail shape biases to discriminate between stable and student t alternatives

The nonnormal stable laws and Student t distributions are used to model the unconditional distribution of financial asset returns, as both models display heavy tails. The relevance of the two models is subject to debate because empirical estimates of the tail shape conditional on either model give conflicting signals. This stems from opposing bias terms. We exploit the biases to discriminate between the two distributions. A sign estimator for the second‐order scale parameter strengthens our results. Tail estimates based on asset return data match the bias induced by finite‐variance unconditional Student t data and the generalized autoregressive conditional heteroscedasticity process.     

The distribution of seigniorage: a note on klein and neumann

Conclusion Building on Drazen [1985], we have developed a suitable framework for the analysis of the revenue from money and its distribution between the government and the central bank. In contrast to the accounting system offered by K-N, this framework adopts a consistent approach with respect to the stock and flow aspects of monetary revenue. Comparing their measure of the government’s share in monetary revenue with ours, one can conclude that K-N: (i) neglect the stock effects of monetary revenue; (ii) use an incorrect concept of debt in their definition of the government’s revenue; and (iii) mistakenly include a revaluation term in their definition of fiscal seigniorage. After correction for this last factor the share of the government in total seigniorage rises from 38.3 per cent to 64.8 per cent. It should be noticed that in the literature often a narrower concept of monetary revenue is used, namely the change in high-powered money (M). This concept neglects the stock component of the revenue of money (r M) as well as the operating and other costs of the central bank. At first sight, this may seem appropriate if the analysis concentrates on the tax aspect, i.e. the savings due to money creation, rather than the broader issue of evaluation of the benefits of the monetary monopoly. This concerns the extensive literature on optimal seigniorage as well as the literature on the tax-seigniorage trade-off [cf. Grilli, 1989]. However, as is clearly pointed out by Klein and Neumann, it is just with respect to this fiscal aspect of money that the distribution of revenues from money between the central bank and the government becomes relevant.     

Support for part-time work as a channel to female employment: the moderating effects of national gender empowerment and labour market conditions

Using a multi-source data set collected across eight European countries, this article examines how characteristics of both the organizational environment and the larger national context relate to the organizational-level variable of women's employment. Our study revealed that, in countries that were high in gender empowerment measure (GEM), establishments that were more supportive of part-time work options also employed a higher proportion of women. One reason for this relationship may be that in high-GEM countries offering part-time employment is a way for an organization to signal its support for work–life balance, something that makes it more attractive to women. In countries with low GEM, an establishment's greater support for part-time work was associated with employing a greater proportion of women only when establishments experienced recruitment difficulties. Key differences in gender empowerment between countries are discussed.