Performance-contingent cash and tangible rewards are commonly used to motivate employees, and the taxation of such rewards is unavoidable. We use two experiments to examine how the effect of reward taxation on employee effort varies by reward type. In Experiment 1, we find reward taxation decreases positive affect, increases negative affect, and decreases reward attractiveness for employees when rewards are tangible, but not when rewards are cash. In Experiment 2, we find reward taxation reduces employee effort when rewards are tangible, but not when rewards are cash. Collectively, this evidence advances knowledge at the intersection of tax and management accounting by explaining why reward type alters the effect of reward taxation on employee effort. Moreover, our experimental results inform managers of a potential downside to using tangible rewards to motivate employees.

We identify 33 areas where assurance services other than financial statement audits are currently offered or are emerging and conduct an extensive web search to document the contextual features of the services in each area. Using a framework for the expansion of assurance services, we analyze these features by asking: (1) Does the subject matter relate to financial information or controls? (2) Are criteria available to evaluate the subject matter? The answers allow us to categorize each area based on whether it represents an expansion opportunity to a traditional, but hypothetical, CPA firm. We then compare our expectations against observed areas where real-world firms have a presence. Finally, we report on two roundtables with senior assurance leaders to validate our findings and enhance our understanding of what is needed for each area to become, or continue to be, well-positioned for expansion by CPA firms.

Prior research provides evidence that auditors experience client incivility. We examine whether client incivility negatively influences auditors' judgments and whether any adverse effects can be mitigated using coping strategies. We first collect descriptive evidence revealing client incivility towards auditors is more widespread than currently documented and victims tend to cope in both active and passive ways. Next, using an experiment we predict and find that audit professionals who experience client incivility are more willing to accept aggressive, client-preferred reporting due to feelings of emotional distress. We also find that coping actively mitigates the negative influence of client incivility whereas coping passively does not. Audit standards and users of financial statements expect auditors to adhere to their professional duty of maintaining a high-level of professional skepticism even when encountering uncivil clients. Our findings suggest that auditors have difficulty adhering to these expectations when they encounter uncivil clients and that only coping actively helps to counteract the harmful effects of client incivility.

SUMMARY The COVID-19 pandemic has fundamentally changed how auditors work and interact with team members and others in the financial reporting process. In particular, there has been a move away from face-to-face interactions to the use of virtual teams, with strong indications many of these changes will remain post-pandemic. We examine the impacts of the pandemic on group judgment and decision making (JDM) research in auditing by reviewing research on auditor interactions with respect to the review process (including coaching), fraud brainstorming, consultations within audit firms, and parties outside the audit firm such as client management and the audit committee. Through the pandemic lens and for each auditor interaction, we consider new research questions for audit JDM researchers to investigate and new ways of addressing existing research questions given these fundamental changes. We also identify potential impacts on research methods used to address these questions during the pandemic and beyond.

Auditors are encouraged to share advice to improve audit quality, but it is inevitable that sometimes this advice will be ignored. Previous research has shown that advice rejection has adverse effects. This paper examines how advice rejection influences auditor’s intentions to provide advice in the future, with a focus on identifying mitigating factors that reduce the impact of rejection. We predict and find in an experiment that expressions of gratitude will reduce the effects of advice rejection, but only when the advisor belongs to the same ingroup as the advisee. Our results provide valuable information for researchers about boundary conditions on the effect of gratitude in the advice domain, and suggest that auditors could emphasize expressions of gratitude to encourage advice sharing amongst team members with a closer group bond.

We survey 134 accounting professionals to examine whether they experience client-initiated workplace aggression, and if so, what forms that aggression takes and how these professionals respond to or cope with such aggression. We also examine the prevalence of an extreme form of workplace aggression, client-initiated bullying, and its effect on accounting professionals. We examine these phenomena using questionnaires on negative acts, coping mechanisms, and bullying that are grounded in the psychology literature. Ninety percent of respondents have experienced at least one client-initiated negative act in their career; on average, respondents experience four such negative acts. Further, our results show that 34 percent of respondents have experienced client-initiated workplace bullying. To cope with workplace aggression, we found that accounting professionals often try to take action to improve the situation but they also ignore or resign themselves to the situation. Conditional analyses reveal that seniors, managers, and partners typically experience more negative acts than staff but seniors and managers also commonly experience more negative acts than partners; we find few important differences between auditors and tax professionals. Additional analyses suggest that partners generally cope differently than staff, seniors, or managers.

This study examines the prevalence of client aggression experienced by accounting professionalsand whether certain coping strategies mitigate potential negative effects of aggression on auditprofessionals' work quality. Survey evidence shows accounting professionals, including auditors,often experience client aggression (98 percent of 163 respondents) and cope in distinct ways (mostoften by coping actively, but coping passively is also common). In an experiment, we predict andprovide evidence that auditors who experience client aggression are less likely to challenge clientson their questionable accounting but challenge clients at levels comparable to auditors who do notexperience client aggression when they engage in coping. Interestingly, we find active coping ismore helpful than passive coping at mitigating the influence of client aggression. Together, ourfindings suggest client aggression is a common threat to auditor judgment and certain copingstrategies can help alleviate the negative impact of client aggression on audit quality.

Regulators are concerned that auditors do not sufficiently identify and report material weaknesses in internal control over financial reporting (ICFR). However, psychological licensing theory suggests reporting material weaknesses could have unintended consequences for acceptance of aggressive client financial reporting. In an experiment, we predict and find auditors accept more aggressive client reporting after they report a material weakness in ICFR than after they report no material weakness. We provide evidence licensing underlies this effect. In a second experiment, we investigate the efficacy of an intervention to reduce the identified licensing effects by prompting an audit quality goal. We find this prompt mitigates the unintended consequence when auditors report a material weakness. While regulators are concerned companies are undeservedly receiving clean ICFR audit opinions, our findings indicate adverse ICFR opinions may lead auditors to give companies undeservedly clean financial statement opinions. We provide a potential remedy to this unintended consequence.

ABSTRACTPrior research documents that auditors fail to revise audit plans to effectively address identified fraud cues. While auditors may understand what evidence would address such cues, we propose that auditors fail to apply this understanding because they use implemental mindsets when making decisions for themselves (i.e., deciding). However, we also propose that auditors use deliberative mindsets when advising. To test our predictions, we assign auditors to a decider or an advisor role in a realistic case that contains seeded fraud cues and asks them to consider revising last year's plan. We also manipulate whether the case prompts auditors to revise the plan unconventionally. Results indicate decider‐condition auditors use implemental mindsets: Prompted deciders follow the unconventional plan without regard to underlying fraud risk and unprompted deciders stick with the same‐as‐last‐year plan. Advisor‐condition auditors use more deliberative mindsets: In the prompt and no prompt conditions, they identify plans that are strongly linked to their own fraud risk assessments and that better align with experts' recommended plan for effectively addressing the seeded fraud cues. Supplemental analyses suggest deciding and advising auditors both follow the experts' plan when they believe in its potential effectiveness but, after controlling for the influence of perceived effectiveness, deciding auditors follow it to a greater extent simply because they believe the PCAOB wants it. By contrast, advising auditors do not exhibit signs of excessive PCAOB influence. Our findings provide evidence that seeking informal advice (or thinking like an advisor) helps auditors to effectively revise audit plans in response to identified fraud risk—it helps when a prompt is present or not, suggesting it complements rather than merely substitutes for interventions meant to improve auditors' judgment and decision making.

ABSTRACT While prior research focuses on the audit team made up of auditors, we focus on the collective audit team made up of auditors and specialists—in our context, information technology (IT) specialists. Complex systems in today's audits and researcher and regulator concerns regarding ineffective coordination and communication between the two specializations motivate better understanding of this collective audit team. We investigate how auditors and IT specialists perceive their relationship and how the audit process unfolds when these relationships are good and when they are difficult. Results of interviews conducted with Big 4 audit and IT practitioners provide evidence that they perceive their relationship quality to depend on the level of mutual value and respect. Auditors assert a one‐team view of the collective audit team that includes IT specialists, but IT specialists feel auditors see them as a separate team and a “necessary evil.” The audit process vastly differs between relationships perceived as difficult and good. In difficult relationships, the two specializations often struggle for status, with limited communication or effort to understand how their work fits together. Our findings imply difficult relationships are at risk for poor integration and unsupported reliance on IT functions, shedding light on recurring threats to audit quality identified by PCAOB inspections. In good relationships, auditors and IT specialists appear motivated to engage in frequent and open communication to help understand, coordinate, and complete the audit. Inferences gleaned from good relationships let us highlight prescriptions for audit firms to improve effectiveness of collective audit teams.

This paper investigates whether individuals that we identify as “connectors”—who possess a blend of innate traits and skills that predispose them to be personable, willing to relate to others, and able to influence others’ relationships—can serve as a catalyst for improving group outcomes. More specifically, we explore whether identifying connectors and placing them in work groups can serve as a control to help firms manage undesirable voluntary employee turnover by improving the group experience and reducing their fellow group members’ turnover intentions. We conduct an experiment to test our hypotheses that members in a group with a connector (versus without) have lower turnover intentions because their experiences are perceived as more positive, and that this turnover intention effect is more pronounced for group members who are demographically distinct from others in their group. Results are consistent with predictions, although the effect of connectors on lowering group members’ turnover intentions is driven by members who are distinct. Our findings broaden the understanding of who connectors are and how they affect group interactions, and further suggest that hiring and deploying connectors in work groups can be an effective component of a more comprehensive retention strategy.

Teams are a critical aspect of how organizations function, however individual team members often fail to sufficiently contribute. In this study, we experimentally examine whether and how psychological ownership improves individual team members’ judgments and communication, two important components of team member contributions. We find that psychological ownership improves participants’ judgments by causing deeper information processing. Further, psychological ownership increases participants’ urgent communication but only when it is warranted, suggesting that psychological ownership prompts team members to communicate more effectively about the “right” issues rather than increasing communication indiscriminately. This study suggests that team structures, task framing, and other interventions designed to promote psychological ownership hold promise for improving judgments and communication in teams with increasingly complex structures that might otherwise undermine the performance of certain team members.

Auditors rely on specialists within their teams to audit highly specialized areas of the financial statements. Yet, auditors and specialists do not always effectively work together, inhibiting specialists' contributions to the audit. We approach this problem by examining specialists' judgments and decisions in the presence of varying audit team behavior. In an experiment with professional valuation specialists as participants, we study the process by which psychological ownership – the feeling that something is one's own – can improve specialists' contributions to audits, and whether auditor behavior that infringes on specialists' work prevents specialists from engaging in this process. We find that specialists with higher versus lower psychological ownership over their audit work engage in deeper cognitive processing only when auditors do not infringe on their work. Deeper processing results in improved contributions to the audit—specialists make more evidence-informed judgments and communicate those judgments more effectively. We contribute to auditing and psychology research by demonstrating the causal chain through which psychological ownership improves specialists' contributions to audits. Further, while psychological ownership is a potential mechanism for interventions aimed at specialists' judgments and behavior, our study emphasizes that the effectiveness of such interventions will depend on auditors' behavior as well.

ABSTRACT Considerable recent audit regulation, both proposed and mandated, and accounting research has focused on auditor independence threats arising over long auditor tenure. Psychology research, however, suggests independence threats also likely arise when auditor tenure is short because auditors can quickly develop a strong client identity, raising questions about the effectiveness of mandatory audit partner or firm rotation to address independence concerns. Relying on Social Identity Theory, I examine mechanisms for promoting auditor independence that can be implemented regardless of auditor tenure or rotation. I conduct two experiments in a setting with no prior auditor-client history. As predicted, auditors who identify more strongly with their clients, by sharing their values, agree more with the client's preferred accounting treatment, unless the salience or arousal of their professional identity is heightened. Further, as predicted, heightening professional identity salience increases professional skepticism. My results provide an improved understanding of the joint effects of identity strength and salience on auditor judgments and suggest a cost-effective alternative to auditor rotation to maintain auditor independence, even when auditor tenure is short.

While prior research focuses on the audit team made up of auditors, we focus on the collective audit team made up of auditors and information technology (IT) specialists. Complex systems in today’s audits, potentially complicated relationship dynamics, and concerns from researchers and regulators regarding ineffective coordination and communication between the two specializations motivate better understanding of this collective audit team. We investigate how auditors and IT specialists perceive their relationship and how the audit process unfolds when these relationships are good and when they are difficult. Results of interviews conducted with Big 4 audit and IT practitioners provide evidence that they perceive their relationship quality to depend on the level of mutual value and respect. Auditors assert a one-team view of the collective audit team that includes IT specialists, but IT specialists feel auditors see them as a separate team and a “necessary evil.” The audit process vastly differs between relationships perceived as difficult and good. In difficult relationships, the two specializations often struggle for status, with limited communication or effort to understand how their work fits together. Our findings imply difficult relationships are at risk for poor integration and unsupported reliance on IT functions, shedding light on recurring threats to audit quality identified by PCAOB inspections. In good relationships, auditors and IT specialists appear motivated to engage in frequent and open communication to help understand, coordinate, and complete the audit. Inferences gleaned from good relationships let us highlight prescriptions for audit firms to improve effectiveness of collective audit teams.

We examine the research literature on audit groups/teams focusing on three main areas: the hierarchical review process, brainstorming as part of the fraud detection planning process, and consultation within firms. We restrict our discussion of these three literatures to judgment and decision making (JDM) experiments. We consider research where two or more individuals within the audit firm interact with one another face-to-face, electronically, or where one person prepares/reviews working papers for another. We outline future research within each of the above areas, as well as considering other areas of future research involving within-firm group interactions related to audit teams in context, shared mental models, and audit team diversity (including sustainability assurance), as well as interactions with groups outside the audit firm, particularly audit committees.

IT plays a critical role in the production of financial statements, and thus, audits over financial statements. However, audit standards provide limited guidance related to the reliance on IT and use of IT auditors; academic literature is sparse on these topics as well. We seek to fill this gap by gaining an understanding of the IT auditor function on financial statement and integrated audits in today’s environment, especially in light of recent PCAOB concerns over undue reliance on IT as a root cause of ICFR-related audit deficiencies. We analyze data obtained from 33 interviews with practicing financial and IT auditors using a research question framework highlighting key points in the audit process. We posit a number of interesting implications including 1) involvement of IT auditors in audits is a relatively subjective process and thus social and behavioral forces could have a significant influence on the way the two teams work together, 2) while IT auditors are typically involved in planning, the extent can vary and there is likely room for increased involvement, especially around fraud-related procedures, and 3) financial and IT auditors have contrasting views on whether increased involvement of IT auditors on business process-related work is needed, but both groups cited the need for mutual respect and knowledge in both domains. Our findings provide a foundation for academic researchers to identify important research issues, develop theory-based predictions, and design experiments (or other models and instruments) to address these issues. Our study also has broad implications for future research in other audit specialist areas, such as tax and valuation.

ABSTRACT This study examines the cross-sectional financial performance among firms from the global information and communication technology (ICT) sector over the period 1998–2007. Using a pooled linear regression, the results show that U.S.-based ICT companies are on average underperforming the rest of the world after controlling for firm-specific variables known to affect firm financial performance. The results also show that characteristics of the firm's host country explain a statistically significant portion of the variation in firm performance, incremental to firm-level characteristics. More specifically, firms located in countries with attractive tax environments and high-government subsidies outperform their competitors in countries with less attractive tax environments and subsidies. Firms in financial markets that provide ICT firms with relatively favorable cost of capital underperform those in markets with a cost of capital less conducive to business development, which may suggest the cost of capital attracts new market competition that reduces overall profit. Countries with the best performing ICT firms are those with the highest industry focus, where a few industries dominate rather than an even distribution of firms across a broad range of industries. The findings have important implications for policymakers, business strategists, and investors.