CAUGHT IN A COGNITIVE TRAP? AN EXAMINATION OF STUDENT HEURISTICS AND DEBIASING WHEN ANALYZING AN ACCOUNTING RESTATEMENT CASE STUDY

Student evaluations and judgments of the accounting method used in the restatement of financial statements by a public company for channel stuffing are examined. To reduce any heuristics and biases that may have affected student judgments, a group brainstorming method was incorporated to supplement individual assessments made by the students. The case study was administered to 206 students in three student groups: non-degree, justice school and business school students. Qualitative evidence about the efficacy of the use of the brainstorming technique is provided. Between-subjects’ assessments of the accounting restatements show that justice school and business school students are more likely than non-degree students to disagree with the assessment that the restatement was appropriate. Empirical evidence was also found for the presence of social identity bias between business school and justice school students’ evaluation of sanctions. Implications on the use of behavioral techniques in accounting and ethics education are discussed.

Channel-Stuffing Reinvented: Earnings Management in Toshiba's Personal Computers Division

ABSTRACT This case describes how Toshiba, a well-known Japanese conglomerate, creatively used the technique of channel-stuffing to inflate its earnings by $478 million during 2008–2014. Students evaluate the uniqueness of Toshiba's practice of channel-stuffing, determine whether Toshiba's financial statements faithfully depicted the economic reality of underlying transactions, and understand the spiraling effects of channel-stuffing on reported profits. Students also learn that the responsibility for integrity in financial reporting lies not just with the top management, but also with the junior employees. The case requires an understanding of only basic accounting concepts and can be used in a variety of courses, especially in the M.B.A. introductory accounting course, and in the intermediate accounting courses at the undergraduate or graduate level.

How does real earnings management affect firms’ future profitability? Evidence from Jordan

This paper investigates the effects of the lagged real earnings management on the firms’ future profitability using a panel dataset (for the years 2012–2017) from the Jordanian industrial companies listed in the Amman Stock Exchange (ASE). We follow Roychowdhury (2006) to measure real earnings management using two proxies: abnormal sales (REMS) and abnormal production (REMP) in the regression analysis. Our findings reveal that real earnings management through abnormal sales has an insignificant effect on the firms’ future profitability. However, we document evidence that firms’ future profitability is adversely and significantly affected by real earnings management through abnormal production. We contribute to the ongoing debate in the literature of real earnings management and its ramifications on firms’ profitability, specifically in the context of developing countries. This research provides implications for policymakers, investors and managers regarding the potential consequences of channel stuffing practices at the different stages of the supply chain on the firm’s future profitability. Future research is suggested to focus on how real earnings management can possibly disrupt supply chains.

How Outcome Information Affects Ethical Attitudes and Intentions to Behave

ABSTRACT The purpose of this experiment is to examine how outcome information affects individual ethical attitudes and intentions to behave. In the present study, a scenario manager employs revenue manipulation by prematurely forcing a product through distribution channels. This investigation employs a 1 × 3 between-subjects and randomized experimental design where the scenario manager's unethical behavior is associated with three behavior-based organizational outcomes: favorable, moderately unfavorable, and unfavorable. We model individual ethical reasoning using the expanded Theory of Reasoned Action. Our findings suggest that the theory provides an appropriate and parsimonious fit for modeling individual ethical reasoning in the channel stuffing context. Specifically, we also find that as organizational outcomes of the scenario manager's coercive behavior shift from unfavorable to favorable, participants judge unethical behavior less harshly, a concerning finding for regulators and policymakers. These findings have significant implications for new revenue recognition standards, such as IFRS 15 and ASC 606. Data Availability: Data available upon request. Please contact the authors.