ABSTRACT A critical component of accounting education is the ability to recognize ethical dilemmas and make ethical decisions. This case provides three vignettes involving ethical dilemmas faced by staff accountants early in their professional careers. The fictional vignettes are inspired by SEC and PCAOB enforcement actions that resulted in severe penalties for the individuals and firms involved. After completing this case, students will be better able to (1) apply critical thinking skills to a real-world scenario (i.e., cheating on professional exams) to understand ethical dilemmas, identify and evaluate alternative paths of action, and determine and defend a preferred outcome scenario; (2) demonstrate an understanding of ethical issues related to cheating on professional examinations and the related impact on the accounting profession; and (3) apply ethics-related principles from the AICPA Code of Professional Conduct to ethical dilemmas seen in the real world. JEL Classifications: M41; M42.

ChatGPT, a language-learning model chatbot, has garnered considerable attention for its ability to respond to users' questions. Using data from 14 countries and 186 institutions, we compare ChatGPT and student performance for 28,085 questions from accounting assessments and textbook test banks. As of January 2023, ChatGPT provides correct answers for 56.5 percent of questions and partially correct answers for an additional 9.4 percent of questions. When considering point values for questions, students significantly outperform ChatGPT with a 76.7 percent average on assessments compared to 47.5 percent for ChatGPT if no partial credit is awarded and 56.5 percent if partial credit is awarded. Still, ChatGPT performs better than the student average for 15.8 percent of assessments when we include partial credit. We provide evidence of how ChatGPT performs on different question types, accounting topics, class levels, open/closed assessments, and test bank questions. We also discuss implications for accounting education and research.

In 2017, KPMG discovered that several high-ranking partners in its Department of Professional Practice (DPP) had surreptitiously obtained highly confidential information on upcoming PCAOB inspections. In obtaining this information, these KPMG partners were able to anticipate and prepare for PCAOB inspections, causing the firm's inspection deficiency rate to plummet and its executives to tout the success of their efforts to improve audit quality. Once the firm discovered the scandal, the individuals involved were terminated, and six of them were ultimately convicted of felonies. This case study introduces students to relevant auditing standards, audit quality concepts, and facilitates discussion of a number of ethical issues. Learning objectives for this case include obtaining an understanding of the PCAOB and its inspection program, understanding audit documentation standards, demonstrating the ability to evaluate ethical issues, applying the fraud triangle in a unique setting, and assessing responsibility for the various parties involved.

This case provides students an introductory experience to substantive analytical procedures in a realistic audit setting. Students are presented with a scenario, adapted from a real-world example, requiring them to (1) research relevant auditing standards, (2) develop an independent expectation for a client's revenue account, and (3) consider the precision of the estimate, additional audit procedures, and the reliability of the underlying data and evidence obtained. In completing the case, students will learn to: (1) explain the benefits and challenges of using substantive analytical procedures, (2) research relevant auditing standards, (3) create and analyze relevant substantive analytics, (4) evaluate the appropriateness of data aggregation in substantive analytical procedures, and (5) discuss factors affecting the reliability of data used by the auditor. The case is typically assigned as an out-ofclass assignment, combined with a subsequent in-class discussion. It can be used in either undergraduate or graduate auditing courses.

We examine whether managers appear to aggregate bias in multiple subjective accrual estimates to meet or just beat analyst expectations. We also consider whether the updated language in recent PCAOB auditing standards, focusing auditors on the potential for bias across multiple estimates, impacted this method of managing earnings. Using hand-collected data from a sample of manufacturers, we find that meeting or just beating the most recent consensus analyst earnings forecast is positively associated with income-increasing bias aggregated from multiple accounting estimates. We also find that this relation attenuates in the years following the issuance of PCAOB auditing standards. Further analyses reveal that, after these standards were released, firms increased the use of income-increasing, unexpected non-GAAP exclusions to meet or just beat expectations, an alternative technique subject to less auditor scrutiny.

SUMMARY In this paper, we study spatial competition in the U.S. audit market while accounting for its two-tiered nature. We provide evidence on the differential impact that market share distances within and between the players in the large and small audit markets have on competition. We find that the market share distance from small audit firm competitors has a greater effect on the Big 4's audit fees than distances from other Big 4 competitors. This finding suggests that small audit firms play a significant part in the competitive landscape in local markets. Further, we find that audit fees are increasing with the distance between a small audit firm and its closest competing small audit firm while audit fees are decreasing with the distance between a small audit firm and its closest competing large audit firm. This suggests that while obtaining separation in market space from competing small audit firms reduces competitive pressure from other small audit firms, as a small audit firm gets closer to the market space of a large audit firm it is perceived as being more like the larger audit firm and is able to obtain a fee premium like that attained by the larger audit firms. JEL Classifications: M4; M40; M41; M42; M49.

The last two decades have been a time of significant development for the academic business ethics community. While a number of scholars have contributed to advances in the field, the work of the individuals who have contributed to its progress and growth through their business ethics research is still not comprehensively understood within the academic business ethics community. This study identifies those individuals who have made major contributions to the business ethics field by ranking authors who have published business ethics-related research in the following six journals over the past 20 years: the Journal of Business Ethics, the Academy of Management Review, the Academy of Management Journal, the Business Ethics Quarterly, the Administrative Science Quarterly; and Business & Society. The results of the study should be of interest to a number of constituencies as they provide the academic business ethics community with a better understanding of the history and evolution of the field and its development towards academic maturity.

Using a combination of short-selling data made available by Regulation SHO and auditor change data disclosed in companies’ SEC filings, we examine whether short sellers (a) discern between “good news” and “bad news” auditor changes and (b) increase their revenue by trading around auditor change announcements. We find that short sellers systematically increase activity following certain auditor changes, which include auditor downgrades (i.e., change from Big 4 auditor to non-Big 4 auditor), auditor resignations, and auditor changes involving a disagreement between management and the departing auditor. Our results indicate that short sellers are able to generate significant returns by systematically taking short positions pursuant to specific types of “bad news” changes.

In this paper, we study spatial competition in the U.S. audit market while accounting for its two-tiered nature. We provide evidence on the differential impact that market share distances within and between the players in the large and small audit markets have on competition. We find that the market share distance from small audit firm competitors has a greater effect on the Big 4’s audit fees than distances from other Big 4 competitors. This finding suggests that small audit firms play a significant part in the competitive landscape in local markets. Further, we find that audit fees are increasing with the distance between a small audit firm and its closest competing small audit firm while audit fees are decreasing with the distance between a small audit firm and its closest competing large audit firm. This suggests that while obtaining separation in market space from competing small audit firms reduces competitive pressure from other small audit firms, as a small audit firm gets closer to the market space of a large audit firm it is perceived as being more like the larger audit firm and is able to obtain a fee premium like that attained by the larger audit firms.

ABSTRACT: The purpose of this case is to provide auditing students with an opportunity for applied learning in a realistic audit setting. The objectives of the case are: (1) to introduce students to the applied use of audit documentation, including the audit program and work papers; (2) to provide students with greater understanding of how various company records can be used by the auditor in his/her audit tests; (3) to demonstrate how the concept of materiality relates to the financial statement audit; and (4) to reinforce the importance of technical writing skills to effective and efficient communication of audit information. The case involves little class time, and students can complete the case in a very reasonable amount of time outside of class. Feedback from students has been very positive.

SUMMARY On September 18, 2012, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) solicited public comments on its exposure draft of the document entitled Internal Control over External Financial Reporting: Compendium of Approaches and Examples (Compendium). According to COSO's press release, the Compendium is part of its project to update the Internal Control—Integrated Framework (Framework) and is meant to “assist users when applying the Framework to external financial reporting objectives.” The 63-day comment period ended on November 20, 2012. This commentary summarizes the contributors' views on this exposure draft (the exposure draft and other related information can be accessed at: http://www.pwc.com/us/en/cfodirect/publications/in-brief/2012-43-coso-releases-internal-control-compendium-for-public.jhtml and the associated updated Framework. Comments are separated into two sections: general comments, and comments in response to specific questions posed by COSO in its request for feedback.

SUMMARYBased on survey responses from approximately 500 Chief Audit Executives (CAEs) and other internal auditors, this article provides an insider's view of the perceived strength of organizations' internal controls (i.e., internal control over financial reporting) in the Control Environment, Risk Assessment, and Monitoring components of the Committee of Sponsoring Organizations' (COSO 1992a) Internal Control—Integrated Framework. Although the respondents largely rate control strength as relatively high, we identify several areas for potential improvement of internal controls, especially related to assessing the “tone at the top,” as well as following up on deviations from policy and management override of controls. In analyzing individual control elements, we find that public companies' controls are consistently rated as more effective than those of other organizations. We also find a number of interesting differences across key industries, especially in the Monitoring component, where banks and other financial services firms appear to have more robust Monitoring controls than do healthcare and other services firms. The component-level analysis reveals that internal control component strength is positively related to the CAE reporting primarily to the audit committee, public company status, and the average tenure of the internal audit function staff, among other findings. Based on the survey findings, we describe key implications relevant to internal and external auditors, accounting researchers and educators, and management.

PurposeThe purpose of this paper is to examine whether external auditor traits influenced the reporting of internal control deficiencies (ICDs) prior to SOX‐mandated audits, holding constant the existence of a control weakness.Design/methodology/approachData are collected from publicly available sources such as Securities and Exchange Commission filings and Audit Analytics database.FindingsCompanies that were audited by industry leading auditors were more likely to disclose ICDs prior to SOX‐mandated audits and that companies with longer client‐auditor tenure were less likely to disclose ICDs prior to SOX‐mandated audits.Originality/valueThese findings suggest that while external auditors were not required to participate in internal control evaluation and certifications prior to their audit of internal control for the 2004 fiscal year, they nevertheless influence the likelihood of ICD disclosure prior to their initial audit.

ABSTRACT This paper ranks individual accounting researchers based on their research productivity in the most recent six, 12, and 20 years. We extend prior individual faculty rankings by providing separate individual faculty research rankings for each topical area commonly published in accounting journals (accounting information systems [AIS], audit, financial, managerial, and tax). In addition, we provide individual faculty research rankings for each research methodology commonly used by accounting researchers (analytical, archival, and experimental). These findings will be of interest to potential doctoral students and current faculty, as well as accounting department, business school, and university administrators as they make decisions based on individual faculty members' research productivity. JEL Classifications: M4, M40, M41, M42, M49. Data Availability: Requests for data may be made to the authors.

SYNOPSIS: This paper presents rankings of accounting doctoral programs based on the research productivity of each institution’s graduates in the years immediately following their graduation. We use two time periods for analysis: the first three years after graduation and the first six years after graduation. We extend previous doctoral program ranking literature by expanding rankings of accounting doctoral programs with specific rankings for topical areas (accounting information systems [AIS], audit, financial, managerial, and tax) and methodologies (analytical, archival, and experimental). We show that rankings for topical and methodological areas differ significantly from rankings produced using methodologies that create a singular doctoral program ranking. These results emphasize the importance of considering topical and methodological areas when assessing doctoral program research strengths. These rankings should be of value to Ph.D. program applicants, administrators of academic programs, and industry—such as administrators of programs like the Accounting Doctoral Scholars program, KPMG Ph.D. Project, and prospective Ph.D. students.

SUMMARY: The internal audit function’s (IAF) regular interaction with management and continual presence within the organization place it in a unique position to monitor the organization. Although the IAF has significant potential to evaluate and improve corporate governance, research has yet to explore how internal auditors assess an important component of corporate governance—management tone at the top. This paper reports survey evidence of 578 practicing internal auditors related to (1) current internal auditing practices regarding assessing management’s tone; (2) internal auditors’ current assessments of management’s tone; and (3) potential future practices internal auditors could perform to improve management’s tone. In addition, we examine whether the tone at the top is higher in organizations where internal auditors perform tone at the top assessments and if assessments differ based on what level of internal audit professional performs tone at the top assessments.

I examine the impact of corporate governance quality on firm reporting of internal control deficiencies (ICDs) prior to SOX-mandated audits holding constant the existence of a control weakness. I find companies that were audited by industry leading auditors and that have higher quality audit committees are more likely to disclose ICDs under the SOX section 302 regime—prior to the mandatory audit of internal controls. I also find that companies that have a CFO with financial accounting experience are more likely to accurately assess the seriousness of ICDs and classify them properly as material weaknesses rather than the less-serious significant deficiencies. These results have implications for the current debate over whether smaller public companies should be exempted from the audit of internal controls as mandated by the Sarbanes-Oxley Act of 2002 (SOX) section 404. Specifically, some have argued that attempting to improve financial reporting quality by improving corporate governance quality might be a less costly alternative to the audit of internal controls (SEC 2005). I provide evidence that higher quality corporate governance does lead to a higher probability of ICD disclosure in the SOX 302 regime when audits of internal controls were not required. Additionally, my findings suggest that while improving the audit committee and the external auditor may help improve the likelihood of disclosures in a setting void of the external audit requirements, assuring the CFO has necessary experience and knowledge can impact the likelihood that ICD is reported at the correct level of seriousness.