An Audit Quality Inspection Scandal: Ethical Lapses in a Misguided Attempt to Alleviate Regulatory Scrutiny

In 2017, KPMG discovered that several high-ranking partners in its Department of Professional Practice (DPP) had surreptitiously obtained highly confidential information on upcoming PCAOB inspections. In obtaining this information, these KPMG partners were able to anticipate and prepare for PCAOB inspections, causing the firm’s inspection deficiency rate to plummet and its executives to tout the success of their efforts to improve audit quality. Once the firm discovered the scandal, the individuals involved were terminated, and six of them were ultimately convicted of felonies. This case study introduces students to relevant auditing standards, audit quality concepts, and facilitates discussion of a number of ethical issues. Learning objectives for this case include obtaining an understanding of the PCAOB and its inspection program, understanding audit documentation standards, demonstrating the ability to evaluate ethical issues, applying the fraud triangle in a unique setting, and assessing responsibility for the various parties involved.

Aristocracy or Meritocracy? The Role of Elite Pedigree and Research Performance in New Accounting Faculty Placements

This paper investigates the influences of elitism and merit in new accounting faculty. Building on research showing that search committees value pedigree in hiring new faculty, we theorize both aristocratic (e.g., accessing or reinforcing elite networks) and meritocratic (e.g., signaling stronger future research potential) influences on the hiring of new accounting faculty. Using curriculum vitae from 381 Accounting Ph.D. Rookie Recruiting and Research Camps, we examine whether candidates graduating from elite accounting institutions place disproportionately higher than do their non-elite peers. Results suggest that elite pedigree predicts placement rank among candidates without favorable publication outcomes at top journals (e.g. acceptance or invitation to resubmit) but not among candidates with favorable publication outcomes. The results suggest joint and complex aristocratic (elite-based) and meritocratic (productivity-based) influences in new accounting faculty hiring.

A CRITICAL ANALYSIS OF CALCULATIONS OF CURRENT EXPECTED CREDIT LOSSES (CECL) AT DYNAMIC CORPORATION

In 2016, the Financial Accounting Standards Board (FASB) issued a standards update on current expected credit losses (Accounting Standards Update 2016-13; FASB Codification® Topic 326). While the update does not change the debits and credits associated with current expected credit losses (CECL), it does significantly change the calculations associated with estimates of current expected credit losses. Additionally, given that most textbooks simply provide inputs for the calculations associated with estimates of current expected credit losses, most accounting curricula does not cover the most important changes found in the update. This case provides students with a hypothetical situation in which to analyze and understand these issues. Specifically, the case requires students to critically analyze a series of current expected credit loss calculations, research authoritative guidance, and conclude regarding the appropriateness of the calculations of the actors in the case. Results indicate that students perceive significant practical learning opportunities from the case.

Using Storytelling to Apply Lessons from PCAOB Enforcements

The real-life failures of others provide vivid opportunities to learn. Audit failures and rule infractions stemming from Public Company Accounting Oversight Board (PCAOB) inspections represent the few instances where detailed information about financial statement audits is made publicly available. The PCAOB enforcement reports contain a wealth of information and offer greater transparency in regard to the audits of SEC registrants. This project uses these reports to teach real-life lessons in the context of the complex regulatory environment in which registered audit firms operate. Students examine the information from these enforcements and then craft and present the stories of the related audit failures. This approach has a proven impact on learning, and students who completed the project reported enhanced knowledge of the regulatory process and audit standards. The student presentations can also be used in a professional environment for CPAs to earn CPE. We provide advice to faculty who wish to pursue a similar option.

Test-Wiseness and Multiple-Choice Accounting Questions: Implications for Instructors

This study examines “test-wiseness” rules-of-thumb accounting students may use when they cannot answer a multiple-choice question. The effectiveness of the rules is poorly understood, but they rely largely on preventable flaws in question design. After identifying eleven relevant rules, we had graduate research assistants employ the rules on unfamiliar material, to test whether the rules can be effective when used by capable students who have not studied the material. Three of the rules demonstrate positive results, and participants are able to recognize the more valuable ones. Additionally, we survey accounting majors at two universities to assess general familiarity and belief in the rules. We find that they have well-formed ideas of the relative usefulness, which are consistent between universities. The results provide some insights into the issues question writers should consider, so as to avoid vulnerability to test-wiseness or even turn the rules to their advantage when composing questions.

Publication Benchmarking Data Based on Faculty Promoted at Institutions Ranked 200+

Although publication benchmarking studies for accounting faculty have been completed for highly ranked research institutions, there is not comparable data for the hundreds of smaller, less high profile, and less resource rich accounting programs. This study provides data for institutions that rank 200+ in the BYU accounting rankings. We take a sample of 50 institutions from this population to develop publication benchmarking for promotion to associate professor. We also provide insights on the timing of publications relative to promotion dates and compare these results to previous benchmarking studies. These results are useful for faculty at these institutions to inform their research efforts and to inform promotion and other decisions for faculty and administrators.

Managing and Disclosing Environmental Risks: A Tale of Two Utilities

This case introduces students to the topic of contingent liabilities by examining the actual management decisions of two energy companies facing increased regulatory scrutiny over the environmental risks associated with coal ash. The case learning objectives include: (1) researching and summarizing the guidance governing the recognition and disclosure of contingent liabilities; (2) critically assessing a company’s decisions regarding the recognition and disclosure of environmental liabilities; (3) accounting for asset retirement obligations; and (4) articulating the ethical implications of a company’s management and disclosure of environmental risks from the perspectives of various stakeholders. The case is designed for use in an intermediate accounting course at the undergraduate level. Students reported improvement in their knowledge and comprehension of contingent liabilities and their appreciation for the ethical implications of accounting decisions. Students also noted that they enjoyed discussing these issues in the context of real companies facing complex environmental challenges.

Azure Lodging, Inc.: A Case Study on Capital Budgeting with Capital Rationing in a Service Industry Context

This case illustrates capital budgeting in a service industry context. Three features should make this case attractive to instructors. First, the firm's rationing of capital means that students must select one investment among competing investment alternatives. Second, the project involves renovation of an existing hotel. Most cases consider a business expansion where analysis involves estimation of a single series of cash flows to generate net present value (i.e., future cash flows or not). In this case, students model cash flows if the project is accepted, comparing those cash flows to a model of cash flows if the hotel continues without renovation. Third, we introduce Monte Carlo analysis, an advanced technique for assessing uncertainty. The extensive data students use in this case is from an actual hotel chain's project database. The case has been used in undergraduate and graduate managerial accounting classes.

Evaluating the Impact of the Accounting Doctoral Scholars Program on Academic Accounting in the US

The accounting establishment and AICPA Foundation responded to an inadequate supply of new accounting faculty by creating the Accounting Doctoral Scholars (ADS) program. Between 2009–2018, the $17 million program enabled 105 practitioners to become audit and tax faculty. Based on market data and an ADS participant survey, we find an increase in doctoral graduates at ADS and non-ADS schools relative to pre-ADS years, and unmet demand for audit has decreased after ADS, whereas tax remains in need. Compared to the market, ADS graduates experienced somewhat better placements by moving up to more prestigious strata and were more likely to place at schools with a doctoral program. Additionally, we present results for ADS students’ motivations, degree completion time, and differences between audit and tax participants. Our findings have important implications for academic accounting, business schools, regulators, and policymakers. We also provide important context for changes in market trends preceding COVID 19.