Evaluating the Strength of Evidence: How Experience Affects the Use of Analogical Reasoning and Configural Information Processing in Tax

2011 ◽  
Vol 87 (1) ◽  
pp. 291-312 ◽  
Author(s):  
Anne M. Magro ◽  
Sarah E. Nutter
Keyword(s):  
Information Processing ◽  
Analogical Reasoning ◽  
Data Availability ◽  
Strength Assessment ◽  
Configural Information ◽  
Relevance Assessment ◽  
Sarbanes Oxley ◽  
Evidence Evaluation ◽  
Combine Authority ◽  
Assessment Of Evidence

ABSTRACT Evidence evaluation in accounting often involves both the assessment of evidence relevance and the combination of its relevance and source to assess overall strength. We decompose this strength-assessment judgment into its components—relevance assessment and source and relevance combination—and consider the effects of experience. Participants in our experiment assess the strength and relevance of tax authorities in relation to a client scenario. Contrary to prior research, we find that more-experienced participants exhibit greater use of analogical reasoning when evaluating tax-authority relevance than do less-experienced participants. We find a similar experience effect in the use of configural information processing to combine authority source and relevance, a judgment not previously considered in tax. The effects of experience are particularly important in the current environment as the tax function is a leading cause of material weaknesses and restatements under Sarbanes-Oxley and tax executives cite increasing difficulty in hiring and retaining qualified professionals. Data Availability: Data are available from the authors on request.

The Impact of Client and Misstatement Characteristics on the Disposition of Proposed Audit Adjustments

2011 ◽  
Vol 30 (2) ◽  
pp. 103-124 ◽  
Author(s):  
Jennifer Joe ◽  
Arnold Wright, and ◽  
Sally Wright
Keyword(s):  
Financial Reporting ◽  
Internal Controls ◽  
Data Availability ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Big 4 ◽  
Time Period ◽  
Confidentiality Agreement ◽  
Financial Scandals ◽  
The Impact

SUMMARY We present evidence on the resolution of proposed audit adjustments during a unique time period, immediately following several U.S. financial scandals and surrounding calls for reforms in auditing and financial reporting, which culminated in the passage of the Sarbanes-Oxley Act (SOX). During this period, auditors and their clients faced increased scrutiny from investors and regulators. In addition, auditors had to contend with changed incentives, a new external regulator (i.e., the PCAOB), and upcoming annual PCAOB inspections. We extend prior studies by considering a broader range of factors potentially impacting the resolution of proposed adjustments, including the effect of client tenure, strength of internal controls, and repeat adjustments. Data on 458 proposed adjustments are obtained from the working papers of a sample of 163 audit engagements conducted during 2002 by a Big 4 firm. We find that 24.2 percent of proposed adjustments were subsequently waived. The results indicate audit adjustments are more likely to be waived for clients with whom the audit firm has had a longer relationship, although the pattern does not reflect favoring such clients. We also find that adjustments are more likely to be waived for repeat adjustments. Data Availability: Due to a confidentiality agreement with the participating audit firm the data are proprietary.

The Effect of Corporate Governance on Auditor-Client Realignments

2012 ◽  
Vol 31 (2) ◽  
pp. 167-188 ◽  
Author(s):  
Cory A. Cassell ◽  
Gary A. Giroux ◽  
Linda A. Myers ◽  
Thomas C. Omer
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Data Availability ◽  
Governance Mechanisms ◽  
Portfolio Decisions ◽  
Audit Market ◽  
Sarbanes Oxley ◽  
Corporate Governance Mechanisms ◽  
Audit Firms ◽  
Governance Index

SUMMARY Events leading up to the implementation of the Sarbanes-Oxley Act of 2002 (SOX) increased the public's focus on corporate governance and increased regulatory scrutiny of corporate governance mechanisms. These events also contributed to a massive restructuring in the audit market that resulted in the transfer of a large number of clients from Big N to non-Big N audit firms. We extend prior research examining the determinants of auditor-client realignments by investigating the effect of corporate governance on downward (i.e., from Big N to non-Big N auditors) switching activity. We develop a corporate governance index comprised of governance characteristics that we expect auditors to find more desirable in their clients (specifically, board and audit committee independence, diligence, and expertise). The results suggest that Big N auditors consider client corporate governance mechanisms when making client portfolio decisions. Specifically, downward auditor-client realignments are more likely for clients that score lower on our corporate governance index. However, the influence of audit committee-related corporate governance components on downward auditor-client realignments decreased post-SOX. The reduced effect of audit committee-related corporate governance components is consistent with what would be expected if the audit committee-related rules imposed by SOX reduced the variation in audit committee quality across clients. Data Availability: The data used are publicly available from the sources cited in the text.

Internet of Things – the future of managing supply chain risks

2020 ◽  
Vol 25 (5) ◽  
pp. 535-548 ◽  
Author(s):  
Hendrik Sebastian Birkel ◽  
Evi Hartmann
Keyword(s):  
Supply Chain ◽  
Information Processing ◽  
Internet Of Things ◽  
Manufacturing Industry ◽  
Radical Change ◽  
Data Availability ◽  
Information Requirements ◽  
Case Study Methodology ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to investigate the implications for supply chain risk management (SCRM) by applying internet of things (IoT). Therefore, the impact and effects on the SCRM process, as well as the internal and external pathway and the outcome of SCRM are examined. Design/methodology/approach This study adopts a multiple case study methodology with twelve companies from the manufacturing industry. This study is guided by the information processing theory (IPT) and a theory-grounded research framework to provide insights into information requirements and information processing capabilities for IoT-supported SCRM. Findings The studied cases demonstrate an increase in data availability in the companies that contribute to improved process transparency and process management. Furthermore, the process steps, risk transparency, risk knowledge and risk strategies have been enhanced, which enabled improved SCRM performance by fitting information requirements and information processing capabilities, thus allowing for competitive advantage. Practical implications This study offers in-depth insights for SCRM managers into the structure of IoT systems, primary use cases and changes for the process itself. Furthermore, implications for employees, incentives and barriers are identified, which could be used to redesign SCRM. Originality/value This study addresses the requirement for additional empirical research on technology-enhanced SCRM, supported by IPT as a theoretical foundation. The radical change of SCRM by IoT is demonstrated while discussing the human role, implications for SCRM strategies and identifying relevant topics for future development.

Confirmation and Cognitive Bias in Design Cognition

2012 ◽  
Author(s):  
Gregory M. Hallihan ◽  
Hyunmin Cheong ◽  
L. H. Shu
Keyword(s):  
Information Processing ◽  
Analogical Reasoning ◽  
Design Research ◽  
Cognitive Biases ◽  
Confirmation Bias ◽  
Psychological Research ◽  
Human Information Processing ◽  
Concept Generation ◽  
Design Cognition ◽  
Concept Evaluation

The desire to better understand design cognition has led to the application of literature from psychology to design research, e.g., in learning, analogical reasoning, and problem solving. Psychological research on cognitive heuristics and biases offers another relevant body of knowledge for application. Cognitive biases are inherent biases in human information processing, which can lead to suboptimal reasoning. Cognitive heuristics are unconscious rules utilized to enhance the efficiency of information processing and are possible antecedents of cognitive biases. This paper presents two studies that examined the role of confirmation bias, which is a tendency to seek and interpret evidence in order to confirm existing beliefs. The results of the first study, a protocol analysis involving novice designers engaged in a biomimetic design task, indicate that confirmation bias is present during concept generation and offer additional insights into the influence of confirmation bias in design. The results of the second study, a controlled experiment requiring participants to complete a concept evaluation task, suggest that decision matrices are effective tools to reduce confirmation bias during concept evaluation.

Developmental Steps in Metaphorical Language Abilities: The Influence of Age, Gender, Cognitive Flexibility, Information Processing Speed, and Analogical Reasoning

2017 ◽  
Vol 62 (2) ◽  
pp. 207-228 ◽  
Author(s):  
Ulrike Willinger ◽  
Matthias Deckert ◽  
Michaela Schmöger ◽  
Ines Schaunig-Busch ◽  
Anton K Formann ◽  
...  
Keyword(s):  
Information Processing ◽  
Cognitive Flexibility ◽  
Early Adolescence ◽  
Processing Speed ◽  
Analogical Reasoning ◽  
Time Pressure ◽  
Early Adolescents ◽  
Information Processing Speed ◽  
Metaphor Comprehension ◽  
Metaphor Processing

Purpose: Metaphor is a specific type of figurative language that is used in various important fields such as in the work with children in clinical or teaching contexts. The aim of the study was to investigate the developmental course, developmental steps, and possible cognitive predictors regarding metaphor processing in childhood and early adolescence. Method: One hundred sixty-four typically developing children (7-year-olds, 9-year-olds) and early adolescents (11-year-olds) were tested for metaphor identification, comprehension, comprehension quality, and preference by the Metaphoric Triads Task as well as for analogical reasoning, information processing speed, cognitive flexibility under time pressure, and cognitive flexibility without time pressure. Results: Metaphor identification and comprehension consecutively increased with age. Eleven-year-olds showed significantly higher metaphor comprehension quality and preference scores than seven- and nine-year-olds, whilst these younger age groups did not differ. Age, cognitive flexibility under time pressure, information processing speed, analogical reasoning, and cognitive flexibility without time pressure significantly predicted metaphor comprehension. Conclusions: Metaphorical language ability shows an ongoing development and seemingly changes qualitatively at the beginning of early adolescence. These results can possibly be explained by a greater synaptic reorganization in early adolescents. Furthermore, cognitive flexibility under time pressure and information processing speed possibly facilitate the ability to adapt metaphor processing strategies in a flexible, quick, and appropriate way.

Capital Structure, Earnings Management, and Sarbanes-Oxley: Evidence from Canadian and U.S. Firms

2013 ◽  
Vol 27 (2) ◽  
pp. 301-318 ◽  
Author(s):  
Kelly E. Carter
Keyword(s):  
Capital Structure ◽  
Earnings Management ◽  
Data Availability ◽  
Cost Of Debt ◽  
Equity Financing ◽  
Percentage Points ◽  
Sarbanes Oxley ◽  
The U.S ◽  
Jel Classifications

SYNOPSIS I examine Sarbanes-Oxley's (SOX) effect on capital structure. I find that SOX is associated with higher long-term debt ratios, as firms listed in the U.S. raise their long-term debt ratios by 2 to 3 percentage points. This finding is consistent with the idea that, although the reduction in information asymmetry associated with SOX could prompt managers to increase equity financing, debt is still safer and less costly than equity in the SOX era. Further analysis shows that the increase in debt occurs in the two quarters prior to SOX, suggesting that firms anticipate a higher cost of debt after SOX and acquire debt while it is relatively cheap. Also, firms that heavily (lightly) manage earnings prior to SOX use less (more) debt after SOX. This result is consistent with the view that firms that aggressively manage earnings before SOX reveal intrinsically weaker earnings after SOX, casting doubt on those firms' ability to repay debt and relegating those firms to issue equity for financing purposes. JEL Classifications: G32; G38. Data Availability: Data available upon request.

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