We hand-collect SFAS 157 voluntary fair value disclosures of 18 bank holding companies. The SEC's Division of Corporate Finance likely targeted these entities in 2008 through their “Dear CFO” letters in which they requested specific, additional disclosure items. We collect disclosures that match the SEC recommendations and create eight common factor disclosure variables to examine the effect of such disclosures on information asymmetry. We find that disclosure variables about the use of broker quotes or prices from pricing services and the use of market indices and illiquidity adjustments are related to lower information asymmetry. However, disclosure variables about valuation techniques and asset-backed securities are related to greater information asymmetry. We also document that disclosure complexity, and disclosure tone (uncertainty and litigious) is related to greater information asymmetry. These findings are consistent with criticism that corporate disclosures are voluminous; management may obfuscate unfavorable information which in turn increases market participants’ assessment of uncertainty associated with the fair value measures. We caveat that the setting of the financial crisis and a small sample size may limit the ability to generalize these inferences to other time periods or other financial firms.

This article builds upon calls for a shift in the paradigm of the accounting discipline, away from preparing or certifying financial reporting of management activities aimed at maximizing share-holder wealth toward recognition that businesses must also be accountable to other stakeholders and indeed the community at large. If individuals in business apply a sound moral compass to their activities and decisions, we believe that commerce can shift toward outcomes that may not only satisfy shareholders but also contribute to the common good. In this article, we are concerned with the role of accounting and business education. We enumerate recommendations toward achieving this paradigm shift from profit maximization to social justice. In some cases, the instructor may implement changes in their pedagogy at their discretion, while in other cases the change may require approval at the department or at higher levels of the university administration. We begin with a discussion of recent accounting and financial reporting failures as well as the global financial crisis. The dangers created by risky practices of financial institutions “too big to fail” and the systemic risk of a global marketplace have not been resolved. We articulate the need for ethics in the accounting and business curricula, a need that is hardly satisfied by the one course typically offered by universities at the graduate level. We propose that businesses and the accounting profession can realize change by redefining accounting as an instrument of accountability. To accomplish this change, each university must critically examine its curricula and reflect topics and material most important to ethical and moral behavior, including borrowing from the liberal arts disciplines. Finally, this article shows how an interfaith approach grounded in social justice to infuse ethical and moral behavior within the accounting curriculum can work.

In this study, we examine the impact of changes in auditor quality on financial reporting information risk, particularly for smaller public companies (non-accelerated filers). Non-accelerated filers represent a large share of public reporting companies (over 60% in 2009), and given opportunity to grow, can create new jobs, providing incentives for recent efforts to exempt or scale back costly regulations. The regulatory easing has created lower disclosure and audit requirements for smaller public companies (non-accelerated filers) compared to larger public companies (accelerated filers). The demise of Arthur Andersen and increased attestation requirements for larger public companies has caused a dramatic decrease in Big 4 audits of smaller public companies. A downward auditor change (from a Big 4 to lower tier auditor) provides the setting to examine the extent to which auditor quality (proxied by auditor size) attenuates or mitigates non-accelerated filer information risk, as measured by stock return synchronicity. Contrary to our expectations, we find that non-accelerated filers have lower information risk in the period following downward auditor changes from Big 4 auditors compared to a matched sample of non-accelerated filers that continue to retain Big 4 auditors. This result also applies when the comparison group is a sample of accelerated filers that change from Big 4 auditors. The results are particularly salient for downward changes to Tier 2 auditors. Our study adds to the literature on audit quality and should be of interest to investors, researchers, and regulators.

The SEC’s Division of Corporate Finance sent “Dear CFO” letters to certain registrants in 2008 requesting voluntary disclosures to improve transparency of Level 3 fair value measures and valuation of financial instruments in inactive or illiquid markets. We expect these bank holding companies were among the companies that the Division of Corporate Finance targeted. We consider the discussion points from the Dear CFO letters to identify the disclosures to analyze in this study. We find that disclosures about valuation techniques and the use of broker quotes or prices from pricing services are associated with increased information asymmetry and disclosures about the use of market indices or illiquidity adjustments are associated with decreased information asymmetry. When interacted with Level 3 assets, disclosures about changes in valuation techniques intensify the positive relation between Level 3 assets and information asymmetry and disclosures about asset-backed securities mitigate the positive relation between Level 3 assets and information asymmetry. Our study provides insight about the types of disclosures that impacted information asymmetries during the financial crisis. However, this setting of uncertainty and use of a small sample size may limit the ability to generalize these inferences to other time periods or other financial firms.

Shocks to the market for auditor services in the early 2000’s had the effect of shifting the provision of audit services to small public companies from a range of auditors to predominantly small audit firms. Concurrently, regulators eased audit and financial reporting disclosure requirements for small public companies. In this study, we examine the effects of auditor quality and regulatory regime changes on information risk for small (non-accelerated) compared to large (accelerated) public companies during 2003-2009. We view information risk as a joint function of the auditor and the client company. We employ market-based measures of information risk including e-loading (market sensitivity to the mapping of accruals onto cash flows) and return volatility (which also captures uncertainty about managers’ future disclosure and reporting choices). We consider auditor quality to be a function of auditor size and other auditor characteristics (e.g., industry expertise). We find that non-accelerated filers consistently have greater information risk than do accelerated filers, controlling for auditor and company characteristics, a result that is robust across types of model estimates (including auditor-client “mismatch” and a matched-pair analysis to control for self-selection bias). We find that changes from large auditors (Big 4 and Tier 2) to Tier 3 auditors increase (decrease) return volatility for accelerated (non-accelerated) companies. A “matched” auditor-client mitigates this result for accelerated companies. We find that lateral changes increase (decrease) e-loadings for non-accelerated (accelerated) companies. Finally, analyses of changes over a three-year period including the year of the auditor change, by type of change, indicate similar effects on our information risk proxies.

Significant accounting scandals and the imminent collapse of Arthur Andersen in 2001 precipitated a period of heightened regulatory response, most notably the enactment of the Sarbanes–Oxley Act of 2002. In the years that followed, the Securities and Exchange Commission created a separate class of non-accelerated filers (companies with public float of up to $75 million) and provided these companies with significant regulatory relief from certain financial reporting disclosure and auditing requirements, including the extension of scaled disclosure to these companies in 2007. Over the period of 2001 through 2007, as non-accelerated clients anticipated and responded to their different and evolving regulatory regime, audit firms were adjusting to the increased concentration in their market, a new monitoring structure, and significant changes to the scope of their work. We examine whether auditor–client misalignment is a significant determinant of auditor change during this period, particularly for non-accelerated filers, as large auditors sought to rebalance their client portfolios. We find evidence that auditor–client misalignment increases the likelihood of auditor change (resignation and dismissal) for non-accelerated, but not accelerated, filers. We also find that auditor–client misalignment increases the likelihood of downward changes to third-tier auditors for non-accelerated, but not accelerated, filers.

We examine the relation between CFO compensation and the effectiveness of internal control structures under SOX, Section 404. Given the growing evidence of an uncoupling of pay from performance, we conduct our analysis using a two-stage regression. In our first stage model, we decompose compensation into its fitted (i.e., explained by firms’ economic characteristics) and residual (i.e., unexplained) components. In our second stage model, we estimate a logit regression of internal control effectiveness on both the fitted and residual components of compensation. Overall, we find that internal control effectiveness is related to the fitted components of compensation, but unrelated to the residual components. These relations exist for aggregate compensation, as well as its individual components (i.e., salary, bonus, equity-based). Our findings suggest that fitted compensation increases the probability of effective internal controls. Conversely, residual compensation does not affect this probability, suggesting that it reflects pay without performance. Our findings inform regulators and standard setters of the often unforeseen costs of increased regulation.

This case seeks to enhance student understanding of the relationship between accounting information and the order fulfllment and production activities of a manufacturing frm, Great Galway Goslings. Great Galway Goslings manufactures goose sculptures and has been suffering losses in recent years. Students draw on the skills they learned in financial accounting to analyze the company's order fulfllment activities, identify economic transactions, and prepare journal entries. The case provides a link to managerial accounting topics as students use segment financial statements to create contribution margin income statements, perform break-even analyses, and recommend whether Great Galway Goslings should keep its retail business segment. Students will become familiar with the key features of business process management (BPM) and the extensive, real-world activities that a manufacturing entity engages in to fll an order. Students will analyze the company's existing order fulfllment process and apply their knowledge of BPM to recommend process improvements for Great Galway. This case contributes to the accounting case literature by serving as a bridge from financial accounting to managerial accounting, intertwining many topics from managerial accounting into one cohesive case, and providing real-world business process knowledge. Student feedback indicates that, overall, the case met its stated learning objectives. Great Galway Goslings is appropriate for an undergraduate introductory managerial accounting course but can be adapted to the equivalent graduate-level course or an accounting information systems course.

ABSTRACTThis case seeks to enhance student understanding of the relationship between accounting information and the order fulfllment and production activities of a manufacturing frm, Great Galway Goslings. Great Galway Goslings manufactures goose sculptures and has been suffering losses in recent years. Students draw on the skills they learned in financial accounting to analyze the company's order fulfllment activities, identify economic transactions, and prepare journal entries. The case provides a link to managerial accounting topics as students use segment financial statements to create contribution margin income statements, perform break‐even analyses, and recommend whether Great Galway Goslings should keep its retail business segment. Students will become familiar with the key features of business process management (BPM) and the extensive, real‐world activities that a manufacturing entity engages in to fll an order. Students will analyze the company's existing order fulfllment process and apply their knowledge of BPM to recommend process improvements for Great Galway. This case contributes to the accounting case literature by serving as a bridge from financial accounting to managerial accounting, intertwining many topics from managerial accounting into one cohesive case, and providing real‐world business process knowledge. Student feedback indicates that, overall, the case met its stated learning objectives. Great Galway Goslings is appropriate for an undergraduate introductory managerial accounting course but can be adapted to the equivalent graduate‐level course or an accounting information systems course.

This study uses three general hypotheses -- realignment, opinion shopping, and litigation risk -- to examine the determinants of auditor changes for a sample of companies. We also look at the reaction of the stock market to auditor changes. Our overall results are primarily consistent with prior research findings. However, we find that non-accelerated filers have important differences from accelerated filers both in the determinants of auditor changes and the market reactions to those changes. Non-accelerated filers appear to be less prone to opinion shopping and have fewer realignment issues driving changes than their accelerated counterparts. Auditor changes for both accelerated and non-accelerated filers, and particularly auditor resignations, are related to litigation risk factors. However, the pattern of significant individual litigation risk variables is different and more pronounced for non-accelerated filers. Our findings also demonstrate that the stock market reaction to auditor changes is different for accelerated filers compared to non-accelerated filers.

Generative learning promotes less reliance on professors' lectures while simultaneously creating more self-reliance among students. This article offers a theoretical rationale that supports generative learning. Within this rationale, the authors describe specific generative strategies that provide students with opportunities to (1) organize course content, (2) integrate new content with students' current knowledge, and (3) elaborate on course content by making connections to real world events. In the second half of this article, the authors offer ideas for implementing generative strategies into the day-to-day events of an economics course. While the authors use Survey of International Economics as their example, the ideas in this article could be applied in a variety of economics courses.

This study examined the efficacy of a class discussion conducted by listserv which was used instead of classroom meetings for a graduate seminar. Research focused on whether this mode of communication was successful for the purpose of the course, and how this mode of communication could be improved as a means for replacing or supplementing face-to-face classroom discussion. Eight students and two faculty members made up the discussion group. Data were collected through analysis of all of the listserv messages, a student questionnaire, and interviews with instructors. Results indicated that: this method of communication was successful for the purpose of this class; students critically analyzed and synthesized reading material; and the listserv had the advantages of greater opportunity to consider responses and convenience compared to face-to-face discussion. Disadvantages were that the listserv was very demanding and time consuming and that visual and auditory nuances were missed. Improvements suggested included keeping the discussion on the topic, limiting the time for discussion, being sure everyone participated, and not being required to lead the discussion for a full week. The student questionnaire with a summary of responses is included.