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(2013)ThesisThe thesis investigates “where were the auditors in asset securitizations”, a criticism of the audit profession before and after the onset of the global financial crisis (GFC). Asset securitizations increase audit complexity and audit risks, which are expected to increase audit fees. Using US bank holding company data from 2003 to 2009, this study examines the association between asset securitization risks and audit fees, and its changes during the global financial crisis. The main test is based on an ordinary least squares (OLS) model, which is adapted from the Fields et al. (2004) bank audit fee model. I employ a principal components analysis to address high correlations among asset securitization risks. Individual securitization risks are also separately tested. A suite of sensitivity tests indicate the results are robust. These include model alterations, sample variations, further controls in the tests, and correcting for the securitizer self-selection problem. A partial least squares (PLS) path modelling methodology is introduced as a separate test, which allows for high intercorrelations, self-selection correction, and sequential order hypotheses in one simultaneous model. The PLS results are consistent with the main results. The study finds significant and positive associations between securitization risks and audit fees. After the commencement of the global financial crisis in 2007, there was an increased focus on the role of audits on asset securitization risks resulting from bank failures; therefore I expect that auditors would become more sensitive to bank asset securitization risks after the commencement of the crisis. I find that auditors appear to focus on different aspects of asset securitization risks during the crisis and that auditors appear to charge a GFC premium for banks. Overall, the results support the view that auditors consider asset securitization risks and market changes, and adjust their audit effort and risk considerations accordingly.
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(2012)ThesisI study how investor sentiment affects the speed in which analysts issue their earnings forecasts. Based on psychological phenomena, I find that deviations from a steady level of economy-wide sentiment are associated with more timely analysts' earnings forecasts. I also find that analysts' earnings forecasts are more timely for firms with higher sentiment. However, I find that analysts' earnings forecasts are more timely only during bust periods. This is consistent with representativeness bias during periods of downturns. When analysts' earnings forecasts are decomposed into upwards and downwards forecast revisions, I find there are differences in the timeliness of upward and downward forecast revisions during boom and bust periods. I then examine the impact the timeliness of analysts' earnings forecasts has on the cost of equity capital. I find that as the timeliness of analysts' forecasts increases, the cost of equity capital reduces. However, there appears to be a maximum point where the most timely analysts' forecasts increase the cost of equity capital. My research provides evidence on analysts' information production processes during periods of both normal and extreme economy-wide sentiment.
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(2013)ThesisThe balanced scorecard (BSC) framework is considered to be one of the most significant innovations in management accounting. While a defining attribute of the framework is its linkage of strategy and performance measures, research indicates that organisations often fail to implement the strategy map component and its efficacy in facilitating more complex decisions has been questioned. In this dissertation, two studies are conducted to investigate the effects of strategy information on managers performance evaluation judgments and dynamic resource allocation decisions using the BSC framework. Prior research has established a bias in managers performance evaluation judgments, towards measures common (as opposed to unique) to two divisions. In Study One, two experiments are conducted to investigate the role of strategy information and strategically linked performance measures in eliminating this bias, and to establish a boundary condition for this common measures bias. The results of this study demonstrate that when strategy information is provided to managers and only some measures are strategically linked, the common measures bias exists; and when all performance measures are strategically linked, but no strategy information is provided, this bias also exists. However, if strategy information is provided and all measures are strategically linked (a condition which did not exist in previous research), the common measures bias is eliminated. Most management decisions are multi-period in nature, leading to calls in the literature to examine BSC framework impacts on dynamic decision making. Study Two examines the effect that causal linkages and delay information in a strategy map have on managers mental model accuracy and dynamic decision performance. The results from this computer simulation-based experiment show that presenting strategic objectives with causal linkages enhances both the accuracy of managers mental models of strategic causal relationships in the business environment and long-term profit. This study also finds that presenting strategic objectives with both causal linkages and delay information together increases the accuracy of managers mental models of strategic causal relationships and strategic delays in the business environment, but does not further increase long-term profit. Both mental model accuracy components are found to partially mediate the direct effects observed on long-term profit.
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(2011)ThesisWithout consistency in auditors' reporting behaviour, it is very difficult for a user of audit reports to determine where differences come from; economic differences, differences in auditing methods, interpretation of standards or even due to the auditors' independence. This thesis examines the consistency in auditors’ reporting behaviour with two empirical studies. The first study investigates the cross-country consistency in the application of auditing standards over time and across different auditing firms in the United States, United Kingdom and Australia. With a sample of 19,157 financially distressed firms from 2001 to 2006, the study finds that there is a lack of consistency in audit reporting behaviour between these countries when it comes to the going concern modification. The lack of consistency is however moderated by international audit firm networks, and the trend is that the country differences have reduced over time. The second study looks at the auditors' consistency by comparing their substantial doubt threshold when first issuing a going concern modification, with their substantial doubt threshold when they withdraw the going concern modification. With panel data from 386 US firms in the years 2000-2008, auditors are found to be inconsistent in their assessment of the substantial doubt criterion. The ceteris paribus probability of observing a going concern modification is 6.9% lower when the going concern modification was first issued, compared to when it was withdrawn. The study finds that this difference is primarily caused by the firms that change auditors between the issuance and the withdrawal of the going concern modification. This implies that given the same auditing standard, different audit firms arrive at inconsistent audit outcomes. Understanding the role and relationship between the various impediments and facilitators to consistency both at a national and international level is of importance to consumers and providers of audit services, as well as those who regulate the audit market. By providing a systematic investigation into the consistency of the audit outcome, the findings of this thesis provides valuable input to the evaluation of the current auditing standards and may serve as a guide to future developments of these standards. The thesis also examines the audit firms’ network structure and its ability to facilitate consistency across borders.
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(2011)ThesisThis study examines whether the survival of Australian companies subject to voluntary administration is associated with the experience of administrators and their professional firm affiliation. A comprehensive data set of 212 voluntary administrations of listed public companies covering the 16 year period from 1993 to 2008 is compiled for analysis. The study finds that administrator experience is positively associated with the initial survival of companies in the VA phase and the ultimate survival of companies in the DOCA phase. This finding is robust to various definitions of experience and various control variables for the financial and other characteristics of companies. The positive association between administrator experience and ultimate survival also persists when the liquidation category is extended to de facto liquidations where pre-administration shareholders lose 95% or more of the value of their equity. The study’s main findings are consistent with the explanation of experienced administrators being relatively better managers of companies rather than self-serving managers that delay liquidation for higher fees. Additional analyses of liquidations in the VA/DOCA phases and losses made by pre-administration shareholders, however, provide evidence consistent with administrator opportunism in the VA phase. In terms of administrator firm affiliation, the study finds that there is a negative association between administrators from Big 4 audit firms and initial survival in the VA phase reflecting the conservative nature or reputational concerns of these firms. In contrast, no association is found between administrators from Large 4 insolvency firms and company survival. There is a positive association, however, between administrators from Mid-tier firms and initial survival in the VA phase. The indirect evidence of administrator opportunism in the study underscores the research need for better public access to information about administrators’ fees.
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(2011)ThesisAuditing standards require auditors to collect 'sufficient appropriate' audit evidence, but fails to provide auditors with guidance on how to do so. Research in psychology calls the cognitive mechanisms to terminate the information search process "stopping rules". The limited literature in psychology identifies four main stopping rules used by decision-makers: magnitude threshold, difference threshold, mental model and mental list. The literature gives little guidance on which of these stopping rules would be used by auditors of financial statements. The purpose of this thesis is to identify the stopping rules used by auditors and to use behavioural decision theory to investigate the impact of the auditor’s knowledge, environment and motivation on auditor stopping rules and decision-making performance. Study One was a verbal protocol study using detailed case study to examine the identification of significant risks at the pre-planning stage of the audit. Participants conducted the task while thinking-aloud to capture their conscious cognitive processes. A checklist similar to those provided to audit staff was provided and used at their discretion. The results identified that auditors used multiple stopping rules during the large, complex and unstructured task. The mental model stopping rule was used to the greatest extent and supplemented by use of the other rules (most often the mental list). This is a significant extension to the stopping rule literature as previously it was reported that decision-makers use only a single stopping rule when determining to cease searching for information. It was also found that the stopping rule itself did not affect performance, but how the participant used the stopping rule; for example use of the mental model alone does not improve performance, but how an auditor uses the mental model. The second study was a behavioural experiment with the smaller, less complex task of identifying the cause of an unexpected gross margin fluctuation. Participants continued to use multiple stopping rules during the conduct of the task, though the magnitude threshold stopping rule was used to a greater extent. The level of risk impacted auditor performance, due to both increasing the accuracy of the participant’s initial cause selection and also the extent to which the participant used the mental model stopping rule. Time budget pressure was found to impact performance via its effect on selecting the correct initial cause.
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(2012)ThesisIn response to its rapidly developing economy, China's accounting standards have evolved dramatically over the last two decades, from an old-fashioned Soviet-style fund-based accounting model towards current International Financial Reporting Standards (IFRS). To investigate the impact of the evolution of the earnings quality of listed companies in China, three testable historical accounting regimes have been identified, namely: (1) the uniform period (1993-1997); (2) the harmonisation period (1998-2006); and (3) the convergence period (2007-to present). Earnings quality under these three regimes is measured for three sets of attributes: (a) time-series attributes, which include, persistence, predictability and smoothness; (b) accrual-based attributes, which include, accrual quality and earnings management and (c) market-based attributes, which include, value relevance, conditional conservatism and timeliness. Using a sample of 23,573 firm-year observations of 2,393 firms for the period 1993 to 2010, twelve measures of these eight earnings quality attributes are regressed on three accounting regime dummy variables while controlling for other company specific characteristics. The results are mixed indicating that the evolution of accounting in China has not necessarily improved all aspects of earnings quality, at least not at the same time, which is consistent with the expectation that the evolution of Chinese accounting will improve certain aspects of earnings quality while exerting less impact on others. In addition, the impact occurs gradually with the issuance of supplementary regulations and the development of the accounting profession. Specifically, accounting evolution seems to have no obvious impact on persistence and smoothness of operating earnings although a reduction in earnings predictability is observed. The convergence period had more scaled accruals and discretionary accruals but a smaller absolute value of discretionary accruals. Although earnings relevance declined over time, this was not due to the change in accounting standards. The harmonisation period shows the highest level of conditional conservatism which accords with expectation. Finally, accounting evolution does not seem to improve the timeliness with which contemporaneous stock information is incorporated into earnings.
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(2012)ThesisSuccessful customer-supplier negotiations depend on negotiators ability to identify mutually beneficial trade-off opportunities to increase supply chain profits. Prior research, however, shows that customers-supplier negotiations are complex and negotiators often enter into negotiations with many uncertainties that lead them to form incorrect perceptions about their counterparts and the negotiation. This results in fixed pie bias, sub-optimal joint costs and less than desirable negotiation tactics. This dissertation reports two experiments that investigate how management accounting practices affect negotiators ability to develop accurate perceptions about their counterparts and the negotiation. Study One compares the effect of two types of accountability (process versus outcome accountability) on negotiation joint outcomes. The results of Study One show that holding negotiators accountable for their negotiation processes instead of their negotiation outcomes encourages the use of more integrative negotiation tactics, reduces fixed-pie biases, and lowers joint costs. Using path analysis, this study demonstrates that the effect of accountability on joint costs is indirect through its impact on negotiators choice of negotiation tactics and the extent to which negotiators can revise their fixed-pie biases. Study Two examines how the framing of cost drivers and suppliers contribution potential (i.e. profits suppliers can add to the negotiation agreement) affect customer-supplier negotiations. The results from Study Two show that suppliers tend to work collaboratively with customers to increase joint profits when they are provided with internally framed cost drivers (i.e. cost drivers represented as suppliers activities) instead of customer framed cost drivers (i.e. cost drivers represented as customers activities). The results provide support for a model predicting that, when faced with powerful customers, suppliers with high contribution potential earn higher profits than those with low contribution potential. This model also shows that the relationship between suppliers contribution potential and their profits is mediated by both suppliers and customers use of integrative negotiation tactics. This mediated relationship is stronger when negotiators receive customer framed rather than internally framed cost drivers.
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(2012)ThesisThere has been growing awareness by practitioners, academics and regulators that managing strategic risks is critical to organizational success. One approach that has been suggested to improve strategic risk management is integrating strategic risk information within strategic performance management systems (SPMS), such as the balanced scorecard (BSC). While recent survey evidence has found that managers use SPMS to respond to changes and uncertainties in the external environment (e.g., Chenhall 2005; Widener 2007), there has been little investigation of the impacts that integrating strategic risk information in SPMS has on managers strategy-related judgments. This thesis aims to empirically examine the effect of integrating strategic risk information in the BSC on managers strategy evaluations and strategy recommendations. Specifically, this thesis compares the judgmental effects of integrating strategic risk information in the BSC to presenting strategic risks in a risk register separate to the BSC, and the moderating role of different strategic risk profiles (that is, whether the strategy is exposed to high strategic outcome risks or high strategic input risks). Based on the results of an experiment, this thesis shows that when strategic risk information is integrated in the BSC, managers make less favorable strategy evaluations and strategy recommendations for a strategy with high strategic input risks than one with high strategic outcome risks. However, managers strategy evaluations and strategy recommendations are not influenced by these different strategic risk profiles when strategic risk information is presented in a risk register separate to the BSC. This thesis contributes to the literature by being one of the first to investigate the effect of strategic risks on managerial judgments. The findings also demonstrate that integrating strategic risk information in SPMS, such as the BSC, has potential beneficial effects in enabling managers to distinguish between strategic risks that have differential impacts on a strategy.
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(2011)ThesisThis study examines vertical product differentiation within the Big 4 audit firms in the Australian audit market and potential pricing effects resulting from this differentiation. Assuming a competitive Big 4 audit market, systematically higher prices pertaining to one particular Big 4 audit firm is indicative of utilisation of a product differentiation strategy. A firm-wide premium implies existence of vertical product differentiation or quality differentiation. I single out PricewaterhouseCoopers (PwC) as the firm which is most likely to be using vertical product differentiation as its predecessor firm Price Waterhouse is historically considered to be the most prestigious of the Big N firms. In particular, I investigate if there is evidence of a PwC premium relative to the other Big 4 audit firms. Using a sample 5,686 observations over the period 2000 to 2009, I find evidence of a PwC audit fee premium in Australia on average and in specific years. Over this period, after controlling for client attributes, Ernst and Young (EY), KPMG and Deloitte (DT) have 9.7%, 10.8% and 12% lower audit fees than PwC, respectively. I also explore the alternative explanations of location, office size, and auditor industry specialisation in assessing the robustness of these findings. Using size and industry matched samples and propensity score matched samples, I further find that the PwC premium identified is a result of PwC being differentiated as a firm rather than having differentiated clients. My findings are of interest to audit researchers, regulators, auditors and auditees because pricing differentiation by PwC poses implications for future audit research, audit regulation and auditor selection. The identification of a PwC premium highlights a new dimension of product differentiation (vertical or quality differentiation) within the Big 4 audit market.