Effect of audit report disclosure on auditor litigation risk

Internationally, the escalating number of cases levelled against auditors and the costs of defending such actions has led to the auditing profession calling for measures to reduce their liability burden. Relatively few measures have been taken by the auditing profession by way of adapting the disclosure contained in the audit report to mitigate their litigation risk. This study examines whether the issuance of an audit opinion with a going concern related ‘emphasis of matter’ paragraph or work practices disclosure has any effect on potential litigants' likelihood of pursuing litigation against the auditor. An analysis of 69 responses from advanced law students and 18 practitioners working in corporate liquidation demonstrate that a modified (but not qualified) audit report effectively acts as a ‘red flag’ and reduces potential litigants' propensity to initiate litigation. However, work practices disclosure did not significantly alter potential litigants' inclination to recommend litigation. Despite this finding, respondents (particularly liquidators) indicated that work practices disclosure was an important factor in their litigation decision. These results suggest that further investigation into how to effectively disclose the work done on audit and assurance engagements is needed. This has implications for standard setters and the auditing profession, especially considering recent changes in the disclosure contained in audit and assurance reports.     

The rise of the ‘network organisation’ and the decline of discretion

This article explores the implications of ‘networked’ and ‘flexible’ organisations for the work and skills of professionals/ Drawing on material from four different case studies, it reviews work that is outsourced (involving IT professionals and housing benefit caseworkers), work that is done by teachers contracted to a temporary employment agency and work organised through an inter‐firm network (chemical production workers). In each case work that was outsourced was managed very differently to that undertaken in‐house, with managerial monitoring replacing and reducing employees' discretion. New staff in these networks had fewer skills when hired and were given access to a narrower range of skills than their predecessors. By contrast, the production staff directly employed on permanent contracts in the inter‐firm network were given (and took) significant amounts of responsibility, with positive results for both their skills and the work processed. Yet, despite the negative impact they have on skills, outsourcing and subcontracting are a far more common means of securing flexibility than organisational collaboration.     

The Role of Decision Importance and the Salience of Alternatives in Determining the Consistency between Consumers' Attitudes and Decisions

This research examines how the importance of a consumer decision influences attitude-decision consistency and choice in decision contexts that contain versus do not contain specified alternatives. Results demonstrate that decision importance moderates attitude-decision consistency when alternatives are not specified, but not when alternatives are specified. These results, in conjunction with the time participants devote to choice, suggest that importance plays a larger role in attitude-decision consistency when alternatives are unspecified versus specified because importance leads to greater effort in generation of alternatives when alternatives are unspecified (an unnecessary task when alternatives are specified in context). Implications for promotion are discussed.     

Industrial product adoption in a technology push industry

Studies of the industrial adoption of innovatious have frequently concluded that managerial attitudes are a crucial determinant of adoption behavior. However, these studies have usually offered hypotheses rather than rigorous tests. Equally important, these studies have not specified the characteristics of those managers whose attitudes exert a particularly strong influence on the firm's adoption policy.     

The extent,motivation, and effect of tying in franchise contracts

Tying in franchise contracts has been the subject of considerable antitrust litigation and theoretical analysis. Tying can enhance efficiency by increasing standardization and reducing monitoring costs, or it can be used with market power for price discrimination. In this paper, I report on the extent of tying among restaurant franchisors and test whether it is motivated by efficiency or market power considerations. The results show that the use of tying is not affected by market share or outlet share in various industry sectors, but it is affected by equipment required and by business strategy. The results are weakly supportive of efficiency and not supportive of market power. Copyright © 2000 John Wiley & Sons, Ltd.     

James Aho. Confession and Bookkeeping: The Religious, Moral and Rhetorical Roots of Accounting. Albany, NY: State University of New York Press, 2005. xx + 131 pp. ISBN 0-7914-6545-4, $40.00.

Confession and bookkeeping, at first sight, have an unlikelybut important link with the origins and development of capitalism,as a set of business practices and as the conceptualizationof such practices. Werner Sombart originally contended thatcapitalism and double entry bookkeeping (DEB) were inextricablylinked as form and content, a theme also developed by Max Weberas part of his analysis of Protestantism and the rise of capitalism. James Aho’s book addresses this important theme and makesa     

The organizational ecology of retailing: A historical perspective

Little empirical research has been done on how to help retailing firms survive recessions. Using the “natural experiment” of the Great Depression and the theoretical lens of organizational ecology, we explore survival of retailers during 1929-1939 to test whether strategic competitive advantages related to human capital, the liability of newness, organizational form, and legitimacy facilitated survival through this upheaval. Consistent with theory from organizational ecology, survival was positively influenced by the average wage paid in the population, the average age of the population, chain store penetration, and an interaction of level of chain store penetration and age. The study offers recommendations for research and practice to retailers. The most important application for retailing managers is that high wage employees, presumably of higher quality, help retailers survive recessions better than low wage employees.     

Write‐Down Timeliness, Line‐of‐Business Disclosures and Investors' Interpretations of Segment Divestiture Announcements

Abstract:   This paper examines investors' anticipation and subsequent interpretations of asset write‐downs accompanying segment divestitures. Examining long‐window returns cumulated over the two years preceding the year of divestiture, we hypothesize and find that investors anticipate write‐downs of segment operating assets before divestiture and recognition occurs, with anticipation conditional on the timeliness of the write‐down and prior disclosure of the segments' operating results under segment reporting rules. Short‐window returns cumulated over the three days surrounding the announcement of the divestiture confirm that investor interpretations of asset write‐downs are similarly contingent on write‐down timeliness and prior disclosure.