We use an experiment to examine how advice valence (i.e., whether the advice suggests good news or bad news) affects the perceived source credibility of data analytics compared to human experts as a result of motivated reasoning. We predict that individuals will perceive data analytics as less credible than human experts, but only when the advice suggests bad news. Using a forecasting task in which individuals are seeking advice from either a human expert or data analytics, we find evidence consistent with our prediction. Furthermore, we find that this effect is mediated by the perceived competence of the advice source. We contribute to the nascent accounting literature on data analytics by providing evidence on a potential impediment to successfully transitioning to the use of analytics for decision-making in organizations.

Title III of the Jumpstart Our Business Startups Act (JOBS Act) enacted by the U.S. Congress enables a new crowdfunding source of investment capital for entrepreneurs and a new opportunity for all investors (Regulation CF). Given the information asymmetry, the SEC requires that managers provide information to investors (Form C). Using this information, this research tests whether business attributes, financial risks, and offering characteristics are associated with successful crowdfunding efforts for 277 offerings originating during 2016-2017 and closed as of May 2018. The following attributes are positively correlated with funding success: product idea; prior managerial experience with startups; financial risks reported by management; availability of an independent CPA review; and, especially for companies reporting revenue, accounting risk measurements. Finally, the funding intermediary chosen is important and some were more successful than others. Overall, the results provide new insights concerning characteristics of successful security-based crowdfunding offerings.

This research tests for understanding of the theory of business risk auditing. Focusing on process-level instead of entity-level business risk assessment, the study tests predictions for risk assessments given two business strategies and the fundamental operating processes of a manufacturing firm. Risk assessments for a client using a product differentiation strategy are compared with assessments made for a client using an operational excellence strategy. The focus is on hypotheses for judgments of process-specific business risk and the risk of material misstatement (RMM) of revenue. Business risk is the risk that a process will not produce the level of effectiveness necessary to achieve one or more entity-level strategic objectives (Bell, Peecher, & Solomon, 2002). Graduate accounting students with auditing experience demonstrated significant understanding of the predicted relationships. With a few exceptions, they (1) produced process-specific business risk judgments that are positively associated with RMM judgments for the critical processes of the product differentiation strategy, and not for the non-critical processes; (2) generated process-specific judgments of business risk that mediated the association of Production process performance and the RMM of revenue; and, (3) when the three product generation processes were performing less well, correctly assessed the highest RMM of revenue. Using this comprehensive set of conditions, contrary to many expressed concerns in the literature, the participants indicate business risk and RMM judgments that reflect significant understanding of the subtleties of business risk assessment.

Drawing on the triangulation framework of audit evidence (Bell, Peecher, & Solomon, 2005: Peecher, Schwartz, & Solomon, 2007), we experimentally test for the conditions, if any, under which financial-statement auditors alter their fraud-risk assessments based on whether external evidence provides positive or negative news about underlying business performance. We focus on the condition in which two kinds of management-controlled audit evidence - evidence from the financial statements and evidence from internal data depicting performance of a key business process - is contradicted by external evidence suggesting that a key business objective has not been attained. According to the triangulation framework, such contradictory external evidence should heighten auditors' skepticism about the veracity of management-controlled evidence and increase their assessment of fraud risk.The experimental findings indicate that auditors' assessments of fraud risk significantly depend on whether or not external evidence disconfirms the attainment of a key business objective, but only when conflicting messages are provided by the two kinds of internal evidence. Importantly, auditors did not rely on external evidence when, in isolation, the two kinds of management-controlled internal evidence both suggested low fraud risk. Auditors' failure to use external evidence as a means of ensuring the veracity of management-controlled internal evidence is more consistent with a credulous than with a skeptical mindset. Crown Copyright (C) 2011 Published by Elsevier Ltd. All rights reserved.

SUMMARY: In this study, we use directly reported CPA firm performance evaluations and hypothesize that higher-performing auditors will perceive that technical knowledge and ability, client interaction skills, and professional attitudes/behaviors are more relevant (H1), will be more inclined to extend standard audit procedures (H2), and will have a more proactive, involved internal locus of control (H3). Fifty-six auditors participated, including the ranks of staff auditor, senior, and manager. Consistent with our hypothesis, higher-performing auditors emphasized the importance of the three dimensions of the work of an auditor; lower-performing auditors did not. Higher-performing auditors were more inclined to extend standardized audit procedures. Finally, auditors who are more proactive regarding the performance of audit judgment tasks and decisions, i.e., they have more of an internal versus external locus of control, were associated with higher levels of job performance.

SUMMARY Fraud risk assessment remains a demanding and complex task for auditors (Allen et al. 2006; Wilks and Zimbelman 2004). Our research context is planning of an audit when an accounting fraud has been committed and management has provided a fraudulent explanation for better-than-expected profitability. We test whether a business model versus a chronological presentation of client strategic and business process evidence will result in more precise expectations of a client's nonfraudulent revenue and higher assessments of a seeded fraud. When management provided a fraudulent explanation, the users of the business model presentation achieved better judgments by making more valid use of nonfinancial performance measures relative to fraudulent assertions made by management. When management did not provide a fraudulent explanation, there were no differences in judgment performance given the two evidence presentations. Data Availability Contact the first author.

In the context of audit planning and application of analytical procedures, we test for the impact of a risk-based causal, versus a chronological, presentation of strategic client evidence on auditor judgment performance when a management fraud has occurred. Also, we examine the impact of a false, non-error management explanation on auditor judgment performance. Judgment performance is defined as (1) the ability to correctly estimate client sales given a fraudulent overstatement and (2) the likelihood of inferring the fraudulent cause of the overstatement. Based on a sample of 42 auditors, we conclude that a risk-based, causal ordering of strategic and business process client information results in more valid estimates of non-fraudulent account balances. Also, the auditors supplied with the risk-based information ordering were better able to diagnose the fraud that had occurred and not be affected by the false non-error explanation from management. Auditors who used the same evidence in a chronological working paper order were unsuccessful on both dimensions. Also, differential auditing knowledge was a determinant of judgment performance. Our results support the use of a risk-based auditing methodology (Bell et al. 2002) to facilitate identifying and processing information linkages.

Effective management of knowledge is essential for a CPA firm to remain competitive. Use of computational models of judgment processes and outcomes causes knowledge to be available for use and analysis. We present a comprehensive and integrated computational model of the difficult and knowledge-intensive judgments needed for successful audit planning. The model concludes on a client's going-concern status, applicable levels of inherent, control, and planned detection risk, and appropriate levels of statement- and account-level materiality. Most importantly, the model validly identifies the cause of significant fluctuations given causal hypotheses. The context is the sales and collection cycle of a manufacturing client. The model consistently replicates causal hypothesis judgments generated by the modeled auditor who exhibits considerable judgment expertise, i.e., his judgments typically coincide with actual causes. Concerning judgment expertise, the model reveals numerous linkages among judgments, subtle interdependencies in cue importance across judgments, and new findings concerning cue diagnosticity.

Recent research in accounting advocates nonfinancial measures of company performance, such as customer satisfaction and loyalty, as useful indicators of aspects of firm performance. But what are the drivers of customer satisfaction and loyalty? We provide an integrated causal model of company performance in the personal computer (PC) industry that simultaneously tests links between product value attributes resulting from business process performance, customer loyalty, and financial outcomes. Our results extend prior accounting research (e.g., Banker et al. 2000; Ittner and Larcker 1998) in two directions: (1) by explaining the determinants of customer loyalty, and (2) by clarifying the relation between customer loyalty and measures of financial performance. We report that product value attributes directly and differentially impact levels of customer loyalty as well as prevailing average selling prices. Furthermore, measures of customer loyalty explain levels of relative revenue growth and profitability, and relatively high customer loyalty engenders a competitive advantage in the PC industry.

Auditors evaluate the collectibility of commercial loans when they conduct financial audits of financial institutions. This judgment task is complex and cognitively demanding— task-specific knowledge is essential. Task-specific academic instruction and “classroom experience” provide for acquisition of relevant credit analysis knowledge; training of auditors and practical experience also are intended to provide relevant knowledge—but the relative benefits of academic instruction and experience versus training and practical experience remain unclear and worthy of research (e.g., Bonner and Walker 1994; Hammond 1996). First, to test for any benefit of academic task instruction and experience, loan judgments made by second-year graduate business students completing an elective course in credit analysis are compared with judgments made by audit seniors with similar business experience but without any credit analysis training or experience. The graduate students’ judgments are significantly more appropriate and less biased, with less variance, given the criterion of the mean judgment of highly experienced financial institution audit partners. Second, as a test of the benefits of academic instruction and experience versus CPA firm training and practical experience, the judgments of the graduate students are compared with judgments provided by experienced audit managers: comparable levels of judgment performance are indicated for both groups. Third, to test for any incremental benefit of additional (and considerable) task-specific experience, comparisons are made of loan judgments made by the graduate students with those of senior managers/junior partners. The senior managers/junior partners outperformed the graduate students (and the managers): they indicated the most appropriate judgments with minimum judgment bias and maximum judgment consensus--and the highest level of judgment confidence. Reported judgment models based on attribute judgments made by the participants explain why the differences in performance occurred. Results are also reported on the calibration of loan collectibility judgments, i.e., the extent to which confidence judgments are correlated with judgment errors: a significant correlation is indicated for the more experience auditors.

This paper presents a model of the audit judgment process of estimating what portion, if any, of a commercial loan is uncollectible. Evaluating loan collectibility can be difficult because the process is only semi-structured, and it can be contextually both complex and information intensive. To understand this critical audit judgment, the judgment processes of highly experienced loan auditors were studied using structured interviews and problem-solving sessions. Using a production system architecture, the model provides a loan collectibility conclusion and a line of reasoning to explain and support the conclusion. Expert reasoning is applied contextually, given characteristics of the loan and the borrower. The model's knowledge base includes: a set of hypotheses for generation of a loan conclusion; a hierarchical structure of contextually relevant intermediate (subgoal) conclusions; and declarative and procedural knowledge represented as production rules to select, measure, weight and combine information. Both qualitative and quantitative information are used. Model validation evidence is reported. Several ideas for future research are also presented.

This experiment tests for a positive effect of performance-contingent, extrinsic incentives (financial rewards and public recognition) on the quality of frequency assessments. Fifty-one graduate business school subjects in (1) equal payment and (2) equal payment plus performance-contingent incentives conditions provided frequency distribution assessments for three variables the subjects were familiar with. Performance-contingent, extrinsic incentives consistently resulted in more accurate frequency assessments (p < .001). Significant anchoring effects were not indicated.

The effect of professional experience on the “explanation effect”, i.e., generation of an explanation for an event occurrence increasing the judged likelihood of the event, is investigated in a risk assessment (financial auditing) context. An explanation effect was predicted for inexperienced auditors (auditing students); however, audit judgment experience was predicted to mediate, or eliminate, any explanation effect. Two competing hypotheses for the origin of the effect, the causal construction and recall-availability hypotheses, are tested given the presence of antecedent conditions for, and against, the explanation events. Audit risk judgments were provided by 58 novice and 42 experienced auditors. Written explanation for occurrence of the target event resulted in the explanation effect for novice subjects, both for specifie event and aggregate risk assessments. The pattern of results supported the recallavailability over the causal construction hypothesis. The judgments of the experienced auditors, however, did not indicate any explanation effect.

Early studies of auditors' professional judgments focused on assessments of internal control for payroll systems (Ashton [1974a]), and the resulting effects on audit program plans (Joyce [1976]). This initial work has been extended to consider auditing students (Ashton and Kramer [1980]), changed cue sets (Ashton and Brown [1980], Hamilton and Wright [1980], and Reckers and Taylor [1979]), changed order of cue presentation (Ashton and Brown [1980]), and increased availability of cases (Ashton and Brown [1980]). Audit program planning judgment research has been extended to consider a larger cue set and the effects of guidance and review using a single situation evaluation by the auditor (Mock and Turner [1981]). Protocol analysis has been utilized to identify criteria auditors' use in evaluating internal controls (Biggs and Mock [1980]), and the tasks of audit program planning and internal control evaluation have been compared to investigate task effects (Gaumnitz et al. [1982]). Using a task and situation similar to the one used in the Ashton and Ashton et al. studies we extend this work by considering explicitly the relationship between years of experience and judgment consensus (interauditor agreement), the stability (reliability) of judgments, the relative

An experimental setting was formulated where individuals processed financial information and provided estimates of changes in security prices. The ability of subjects to express accurate subjective cue weights was assessed by comparing the subjective weights with objective (statistical) cue weights based on their judgments. The results indicate an encouraging degree of insight, especially when the results are compared with previous studies in psychology, since this group of users of accounting information were able to express indications of relative cue importance which reflected the way they were using the information.

Joyce has selected an important area of accounting research to investigate. The specific issue addressed here is: given the importance of professional judgment in auditing, and given previous evidence indicating substantial individual differences in judgments concerning the amount of audit work to perform, what specific properties of judgment models can be inferred in a quasi-experimental setting? Given the loss functions being imposed upon public accounting firms for judgmental errors by the courts and the general public, the topic is obviously contemporary and interesting. Aside from the costs of information gathering and usage, analysis of judgment models is mainly of interest if different audit opinions are implied by different evidence-gathering procedures and alternative individual and group judgment models. If decisions concerning, for example, what audit opinion to generate or what particular allocation of resources is appropriate for a specific phase of an audit, are made in a group setting, then the area of group judgment and decision processes is the relevant context. Characteristics of both individuals and groups imply alternative group decisions (Davis [1969]; Davis et al. [1976]). A portion of future work in the auditing area should be concentrated on group processes.