Showing papers in "Accounting Organizations and Society in 2015"

Organized hypocrisy, organizational façades, and sustainability reporting

Abstract: Sustainability discourse is becoming ubiquitous. Still, a significant gap persists between corporate sustainability talk and practice. Prior research on corporate sustainability reporting has relied primarily on two competing theoretical framings, signaling theory and legitimacy theory, which often produce contradictory results regarding the significance and effects of such disclosures. Thus, despite this substantial body of research, the role that sustainability disclosures can play in any transition toward a less unsustainable society remains unclear. In an effort to advance our collective understanding of voluntary corporate sustainability reporting, we propose a richer and more nuanced theoretical lens by drawing on prior work in organized hypocrisy (Brunsson, 1989) and organizational facades (Abrahamson & Baumard, 2008; Nystrom & Strabuck, 1984). We argue that contradictory societal and institutional pressures, in essence, require organizations to engage in hypocrisy and develop facades, thereby severely limiting the prospects that sustainability reports will ever evolve into substantive disclosures. To illustrate the use of these theoretical concepts, we employ them to examine the talk, decisions, and actions of two highly visible U.S.-based multinational oil and gas corporations during the time period of significant national debate over oil exploration in the Alaskan National Wildlife Refuge. We conclude that the concepts of organizational facade and organized hypocrisy are beneficial to the sustainability disclosure literature because they provide theoretical space to more formally acknowledge and incorporate how the prevailing economic system and conflicting stakeholder demands constrain the action choices of individual corporations.

The role of innovation in the evolution of management accounting and its integration into management control

Abstract: This paper aims to show how the design of management control systems (MCS) has developed in response to the need for organizations to address the challenges of operating in uncertain settings by embracing innovation. We examine how management accounting has evolved from a traditional, cybernetic approach to control operating within a closed system with little attention to adaptive processes into MCS that encompass a more dynamic, complex, open approach to management control that has provided a basis to facilitate innovation. We examine how the design and use of these MCS, that incorporate traditional and new practices, have evolved in ways that can support innovation where this is critical to survival. Accounting Organizations and Society (AOS) has been quite instrumental in pioneering many developments in this field. We draw on AOS, and other publications, to identify significant contributions that have been efficacious in theorizing changes in MCS with a particular concern for the context of innovation within which this takes place.

How accounting begins: object formation and the accretion of infrastructure

Abstract: Drawing on the case of accounting for the impact of research in UK universities, and building on key contributions to Accounting, Organizations and Society, the paper explores the conditions under which new accounting systems begin and the unfolding dynamics by which vague performance objects becoming operational. Accounting for research impact involves a radical change in the landscape of UK universities. At the centre of this change process is the progressive construction of the Impact Case Study (ICS) as a new unit of performance accountability for UK universities. Inductively, the emergence of the ICS suggests a fourfold developmental schema for accounting origination spanning field and organization level changes: policy object formation, object elaboration, activity orchestration and practice stabilization in infrastructure. Drawing upon existing scholarship, the paper uses the impact accounting setting to explore the dynamics of this developmental schema and its implications for calculation, subjectivization and the structuring of organizational temporalities. The case of impact in UK universities shows that accounting never simply begins but has multiple conditions of possibility which align as drivers for change at both field and organization levels. The case of impact accounting also reveals the significance of managerial infrastructures during accounting origination and this is suggestive of a future research agenda.

Twittering change: The institutional work of domain change in accounting expertise

Abstract: This paper develops an endogenous model of institutional and professional domain change. Traditional accounts of domain change focus attention on how professional expertise is extended to new areas of practice. This form of domain extension is typically both deliberate and contested. However, domain change can also occur in a somewhat quotidian and uncontested fashion when professional expertise is extended intra-organizationally. We analyze the ways in which the domain of accounting expertise is reconstituted in new social media – Facebook, LinkedIn and Twitter – in Big 4 accounting firms. Using content analysis and interview data we show how social media professionals, in pursuing their own professional project, generate change in the professional domain of accountancy. Our analysis demonstrates that the institutional work of domain change occurs through three related activities: boundary work, rhetorical work and the construction of the embedded actor.

The structuration of issue-based fields: social accountability, social movements and the Equator Principles issue-based field

Abstract: This paper presents a longitudinal case study examining why and how commercial banks sought to integrate sustainability issues into their project finance operations between 2003 and 2008. We study the evolution of a set of influential environmental and social risk management guidelines for project finance – the Equator Principles (EP) – and the simultaneous structuration of a field around these guidelines focused on the issue of socially accountable project finance. The case is theoretically framed using Hoffman’s (1999) concept of an issue-based field and associated conceptualisations of the role of internal and external (social) movements in the structuration of these fields. The structuration of the issue-based field studied is shown to encompass a dynamic, contested process involving extensive interactions between a non-governmental organization (NGO) movement and a commercial bank movement. We unveil how the conflicting, collective rationales and actions of both movements fuelled the structuration process and facilitated an evolution in the social accountability of commercial banks. While prior work sees little potential for civil society actors to engage with and move corporate social responsibility and reporting in a more challenging direction, we reveal how the NGO movement evoked a progression in social responsibility and reporting in a sector that had previously shown little inclination to address its wider social accountability. Drawing on our case analysis, we theorize how issue-based fields cohere and crystallise, particularly how they build an institutional infrastructure based upon the infrastructure of the mature field which they straddle and which the relevant issue impacts upon.

Group judgment and decision making in auditing: Past and future research

Abstract: 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.

“Twisting words”? A study of the construction and reconstruction of reliability in financial reporting standard-setting

Abstract: Qualitative characteristics serve to operationalise the objective of financial reporting and aim at shaping accounting discourses of standard-setters and their constituents. In the recent revision of their conceptual frameworks, the IASB and FASB decided to replace “reliability”, arguably one of the most important properties of accounting, with “representational faithfulness”. The aim of the present paper is to shed light on the boards’ decision through a historical analysis of how reliability appeared in standard-setting and by tracing its abandonment in detail. Our study reveals that the standard-setters’ construction and reconstruction of reliability attempted to undermine traditional practitioner understandings along the lines of objectivity/verifiability in order to extend the boundaries of appropriate financial reporting in the direction of current/fair values. However, as the introduction of more abstract concepts raised difficulties in reconciling the new terminology with everyday accounting practice, this turn created confusion among constituents and board members. Our paper also contributes to further our understanding about decision-making processes in standard-setting. In particular, we show how a group of board and staff members was able to establish the replacement of reliability in spite of (and partly taking advantage of) constituents’ concerns and widespread confusion about the terms.

Earthquakes, exceptional government and extraordinary accounting

Abstract: This study examines how a particular set of calculative practices and classification systems helped to guide the emergency responses to the 2009 earthquake in Abruzzo, Italy. Accounting classifications worked in tandem with scientific classifications to define the seismic event as a site for exceptional governance, to demarcate the temporal and spatial boundaries, and to guide the immediate and subsequent healthcare-related humanitarian responses. Accounting classification schemes were borrowed and built by the local health authorities as the federal government made the provision of disaster relief funding contingent on the identification of additional and traceable earthquake-related expenditures. The analysis also shows the maneuvers that occurred around the accounting classifications as public healthcare providers attempted to use the classifications to solve day-to-day health treatment funding problems and the federal government tried to exert control at a distance. The analysis provided both contributes to our understanding of the governance of these exceptional events and brings to the fore the challenges associated with such humanitarian responses.

Entrepreneurs of the self: the development of management control since 1976

Abstract: This review article considers some of the key management control articles published in AOS through the theoretical lens of Foucault's 1978/9 lectures on neo-liberalism and biopolitics. In these lectures Foucault analyses the shift from classical liberalism to what he describes as American neo-liberalism, the birth of biopolitics and the understanding of humans as entrepreneurs of the self. Foucault set out in the late 1970s what is now strikingly apparent in 2015 – the spread of neo-liberalism universally to domains which were previously thought to be “non-economic”, specifically, and for the purposes of this paper, to human-beings.

Corporate political connections and the 2008 Malaysian election

Abstract: We examine whether the relationship between political connections and firm value is moderated by the length of time firms have been politically connected. We find that compared to firms with political connections for a short period, firms with political connections for a long period have a smaller magnitude of negative stock price reaction to the 2008 General Election loss of the supermajority by the ruling party in Malaysia. We also find that the smaller magnitude of negative stock price reaction is, in part, attributable to improvements in board of director characteristics. Furthermore, we find that while the performance subsequent to the General Election of politically connected firms is worse than that of non-politically connected firms, firms with political connections for a long period exhibit better performance than those connected for short periods. Collectively, the evidence shows that the length of political connections is an important factor that moderates economic value.

Rotational internal audit programs and financial reporting quality: Do compensating controls help?

Abstract: A report from the Institute of Internal Auditors finds that a majority of Fortune 500 companies systematically rotate internal auditors out of the internal audit function and into operational management (IIA, 2009a). We use semi-structured interviews with 11 chief audit executives and 2 audit committee chairmen to develop an initial framework focusing on how this practice affects financial reporting quality. We then test these associations with archival data and find that companies that use a rotational staffing model for the internal audit function have significantly lower financial reporting quality than companies that do not. However, we find that several compensating controls identified from the interviews (e.g., consistency of IAF leadership or supervision, audit committee oversight, and management oversight and direction) can reduce this adverse financial reporting effect. We conclude that companies should consider the potential costs of using a rotational staffing model in the internal audit function and, if adopting this practice, should ensure the appropriate compensating controls are in place to mitigate such costs.

Construal instructions and professional skepticism in evaluating complex estimates

Abstract: This study investigates the use of audit evidence documentation instructions that promote the collection and processing of evidence with high-level construals (broad, abstract interpretations of the evidence). Abstraction can help a person piece together individual pieces of information or evidence and better enable a person to see the big picture of what the collective information portends. The results of an experiment suggest that auditors think and act with more professional skepticism when using the documentation instructions that promote high-level construals as compared with auditors using documentation instructions promoting low-level construals (specific, detailed interpretations of the evidence, akin to current audit practice) and with auditors not given documentation instructions. Further, the high-level construals foster better processing of the collected evidence. The study also provides preliminary evidence that task complexity could interfere with professional skepticism.

Shareholder orientation and the framing of management control practices: A field study in a Chinese state-owned enterprise

Abstract: This paper explores how notions of enhanced shareholder orientation influenced the evolution of management control practices in a Chinese state-owned enterprise over a ten-year period. Drawing on the social movement literature and adopting a historically informed field study approach we examine how this took the form of a protracted framing process where an emerging, shareholder-focused frame interacted with the extant work unit frame embedded in Maoist ideology and the broader cultural system of Confucianism and imbued control practices with context-specific meanings. Particular attention is paid to how this interplay fostered varying degrees of frame alignment, denoting the extent to which particular frames are congruent with those enacted by various social actors, and how this affected organisational action. We illustrate how the shareholder-focused frame challenged extant control practices but was also complemented and ultimately replaced by the work unit frame to address an escalating performance crisis. These findings lead us to reflect on how resistance to shareholder-focused control practices is brought about and what roles alternative and more deeply embedded frames play in constraining as well as enabling collective action. We also discuss how the approach to framing informing our analysis may complement cognate accounting research drawing on notions of performativity and social psychology.

The effect of an Audit Judgment Rule on audit committee members’ professional skepticism: The case of accounting estimates

Abstract: Changes to the audit environment have led to suggested changes to the regulatory framework for evaluating auditors’ judgments including the introduction of an Audit Judgment Rule (AJR), whereby courts and inspectors will not second-guess auditors’ reasoned judgments provided they are made in good faith and in a rigorous manner. We examine the potential effect of the AJR on the skepticism of Audit Committee Members (ACMs) in terms of the extent to which they ask probing questions to external auditors, CFOs and Heads of Internal Audit concerning an accounting estimate. This level of professional skepticism is a critical element of the duties of an ACM in the oversight of the financial reporting and auditing processes, especially for complex and future orientated accounting estimates. Because an AJR would likely encourage adoption of innovative audit procedures, we further examine the effect of these procedures, as compared to standard procedures, on ACMs’ skepticism given an AJR. Our findings show that an AJR increases ACMs’ perceived accountability in ensuring the reasonableness of the financial statements, and that a movement towards more innovative audit procedures under an AJR framework increases ACMs’ perceived overall comfort regarding the treatment of the accounting estimate. On average, these factors do not affect the overall level of ACMs’ skepticism in terms of the number of questions asked or the extent to which the questions are probing. However, these results differ depending on the demographic background of the ACM participants.

Regulation and the interdependent roles of managers, auditors, and directors in earnings management and accounting choice☆

Abstract: In this paper, we examine the growing number of behavioral studies of how financial reporting, auditing, and other corporate governance regulations affect earnings management and accounting choice-related decisions of managers, auditors, and directors. We first describe how experimental and survey studies can add unique insights into our understanding of earnings management and accounting choice. We then organize our review of the literature by the type of regulation (financial reporting, auditing, or corporate governance) and secondarily by which of the three parties are affected. Finally, we point out useful directions for future research and discuss key methodological choices faced by those who will conduct that future research.

Transplanting Anglo-American accounting oversight boards to a diverse institutional context

Abstract: The introduction of accounting and auditing oversight boards (OBs) has been promoted on a global scale as a key component of the international financial architecture that has emerged over the past two decades. Such institutions, modeled on the Anglo-American tradition, are domestically organized and embedded within distinctively diverse institutional contexts. Their role is to ease agency problems, improve the quality of financial reporting, and help provide stability in the global financial system. We employ an institutional approach, located within the broader political economy framework of global capitalism, to examine the establishment and operation of the new regulatory regime in Greece. Greece, a member of the European Union, exhibits characteristics of a "delegative" democracy, i.e. a traditionally weak institutionalization, reform (in)capacity problems and a clientelistic political system. Our case study shows that the formation and operation of the newly-established system of oversight is conditioned by local political and economic constraints and, thus, does not automatically translate into concrete benefits for the quality of financial reporting. We also draw attention to the structural mismatch between a progressing globalized financial integration and the fragmented nature of the system of oversight, and illustrate that OBs' independence from local governments is an important but neglected issue.

The development of accounting regulations for foreign invested firms in China: The role of Chinese characteristics

Abstract: Drawing on actor network theory (ANT), this paper analyses the role of Chinese characteristics in the emergence of three accounting regulations for foreign invested firms (FIFs) as part of China’s recent transformation to become part of the “world order”. The paper examines how international accounting standards (IAS) and existing Chinese accounting were translated into new regulations for FIFs, and how these translations were shaped by malleable interpretations of Chinese characteristics. Chinese characteristics were a discursive obligatory passage point (OPP) rendered malleable through cognition and the sanctions of political authority to suit the interests of actors seeking to produce new accounting regulations. Chinese characteristics were a signifier that carved out a space for local networks to attain their identity and retain some measure of independence from global networks, shaped the construction of each accounting regulation for FIFs into an attractive package, and influenced the adaptation and transformation of those elements of Western accounting that arrived into China. In turn, IAS became part of the discursive field on accounting regulation that helped mediate the shifts in the interpretation of Chinese characteristics over time.

Disclosure transparency about activity in valuation allowance and reserve accounts and accruals-based earnings management

Abstract: We examine the relation between the transparency of disclosures about activity in valuation allowance and reserve accounts and accruals-based earnings management. We classify disclosures as being transparent if they provide detailed information about activity in the allowance and reserve accounts during the fiscal period. We find strong evidence that the extent of accruals-based earnings management is lower among companies with transparent disclosures than among companies without transparent disclosures. We also investigate whether the extent of accruals-based earnings management is lower for companies that provide transparent disclosures in one comprehensive schedule (i.e., the Schedule II) relative to those that provide transparent disclosures spread throughout the notes to the financial statements. Although regulators have expressed concern that the omission of a Schedule II could indicate a greater likelihood of earnings management, our results indicate that it is the omission of transparent disclosures rather than the omission of a comprehensive schedule outlining activity in the allowance and reserve accounts that affects earnings management. Our findings suggest that regulators, auditors, and investors should consider subjecting companies that fail to provide transparent disclosures to additional scrutiny.

Target difficulty, target flexibility, and firm performance: : Evidence from business units targets

Abstract: Despite the importance of target setting for firms, prior research offers mixed evidence regarding performance consequences of target difficulty levels. While experimental research suggests that setting difficult targets can increase performance, empirical evidence in field studies is mixed and ambiguous. To explain this ambiguity, we introduce and analyze firms’ target flexibility with regard to adjusting targets intra-year. We argue that target flexibility is associated with both target difficulty and firm performance in the field and therefore can significantly contribute to an understanding of their relationship. Our examination of survey and archival data from 97 firms supports our predictions. We find that the difficulty of business unit targets exerts a direct positive effect, but an indirect negative effect on firm performance where the latter is partly mediated by firms’ target flexibility. Additionally, we find that the predominant use of targets for planning and coordination (vs. performance evaluation) mitigates both performance effects. Our findings may help explain mixed field study evidence regarding the effects of target difficulty.

Management control system design, ownership, and performance in professional service organisations

Abstract: The objective of this study is to investigate the implications for organisational performance of the interplay between ownership and management control system design in professional service organisations. Based on transaction cost economic (TCE) theory, we expect that low ownership by professionals working in a professional services organisation will be more efficiently managed with a boundary MCS archetype and high ownership by an exploratory MCS archetype. Of direct relevance, we predict that a failure to conform to these optimal archetypes will manifest in relatively poorer performance. The study was conducted based on a survey of 120 practice managers of primary healthcare organisations in Australia. These results provide empirical support for the stated prediction.

The effect of cost goal specificity and new product development process on cost reduction performance

Abstract: Many firms that compete based on the development of new and innovative products have begun to adopt concurrent new product development (NPD) processes in which product design phases occur in a non-linear and iterative manner. While concurrent NPD processes increase flexibility and reduce time-to-market as compared to traditional sequential processes, concurrency increases task uncertainty since the product design process begins before all important product features and specifications have been established. Such changes can result in costly redesign and rework. Prior research suggests target costing, where product design teams are assigned specific cost goals, is an effective method of controlling costs in sequential NPD. Even so, it is unclear whether target costing will improve cost reduction performance when combined with a concurrent NPD process due to increased task uncertainty. We examine experimentally the ability of product design groups to achieve specific or general cost reduction goals under simulated sequential or concurrent NPD. We predict and find that the nature of the NPD process moderates the effect of specific cost reduction goals on actual cost reduction performance. While specific cost goals result in higher reductions in product cost than general cost goals under a sequential NPD process, specific goals are no better than general goals in motivating design groups to reduce product cost under a concurrent NPD process; thus, we demonstrate boundary conditions on the usefulness of target costing as a cost control method.

Audit team time reporting: An agency theory perspective

Abstract: While some research suggests that explicit incentives to meet time budgets have recently been reduced at audit firms, there is also evidence indicating that audit seniors and staff still feel at least implicit pressure to meet budgets. We examine the possibility that both of these findings tell a part of the story. Specifically, we explore whether, and under what conditions, seniors and staff are implicitly encouraged to underreport time through future engagement staffing decisions and the performance evaluation process. Further, we consider the extent to which agency theory can serve as a framework for understanding how the incentives of audit managers and partners influence how they view underreporting by their engagement staff. We place participants in a scenario in which they are responsible for evaluating an engagement senior who appears to have worked more hours than were budgeted. We manipulate the senior’s reporting accuracy (underreporting versus accurate reporting) and the desirability of the client (more versus less desirable). We find that, when managers’ agency-related incentives conflict more strongly with those of the firm (more desirable client), they tend to tacitly encourage underreporting through their evaluations of the senior’s performance. Managers are also more likely to request an underreporter on a future engagement. In contrast, partners placed in the same setting show no evidence of encouraging underreporting. Thus, our results suggest that managers’ tacit encouragement of underreporting is contrary to what the “principals” of the firm (i.e., partners) appear to want. Further, while firms may have reduced their emphasis on formal, explicit incentives to underreport, it appears likely that implicit manager incentives persist.

Risk and the construction of a European audit policy agenda: The case of auditor liability

Abstract: In 2008, following a sustained policy campaign by the large international accounting firms, the European Commission issued a Recommendation that European Union (EU) Member States should limit civil liability for statutory auditors. The Recommendation, however, was far from the firms’ desired outcome because, as a non-binding policy document, it left it to individual Member States to decide whether (or not) and how to limit auditors’ liability exposure. This paper analyzes the European transnational audit policy-making processes by which such a decision was reached and what prevented the firms from securing a more definitive EU-wide policy solution with respect to auditor liability limitation. Drawing on Hilgartner’s concept of a ‘risk object’, the paper reveals how a search for a policy consensus on auditor liability was invariably frustrated by the competing conceptualizations of, and exposure to, risk attributed to particular proposed liability arrangements. As such, auditor liability emerges as a constantly shifting regulatory construct rather than a dilemma waiting to be resolved. The study also emphasizes the residing significance of the authority of the nation state in the European audit policy context, with policy preferences of individual EU Member States having a substantial influence on the outputs of European audit policy making.

Fair value accounting for liabilities: Presentation format of credit risk changes and individual information processing

Abstract: International Accounting Standard 39 (IAS 39) and the Statement of Financial Accounting Standard 159 (SFAS 159) both require a firm to include adjustments to the fair values of its liabilities resulting from changes in its own credit risk in net income. Previous research confirms that including these gains and losses in net income can confuse financial statement users. The International Accounting Standards Board (IASB) therefore issued a revised standard for financial instruments, International Financial Reporting Standard (IFRS) 9. It requires that credit risk effects be presented in other comprehensive income (OCI) instead of net income. We use an experiment to investigate whether this difference in presentation affects knowledgeable nonprofessional investors and whether the presentation format effect depends on firm profitability. We find that participants are more likely to acquire the information on changes in credit risk if that information is included in OCI. The perceived importance of credit risk information for the evaluation of firm performance is only slightly lower under the OCI presentation format, and the risk of misinterpreting a credit risk gain is unaffected by the presentation format. However, the evaluation of overall firm performance is less biased if fair value gains are included in OCI. Moreover, information acquisition and the interaction of weighting and credit risk evaluation mediate the effect of presentation format on firm performance evaluation. Furthermore, we identify firm profitability as an important factor that influences the processing of information on credit risk changes.

Gender essentialism and occupational segregation in insolvency practice

Abstract: Advances towards egalitarianism in professional recruitment may be offset by processes of occupational re-segregation Drawing on gender theory this paper investigates horizontal segregation in the UK insolvency profession, as revealed through the lived experiences of female and male practitioners It is shown that horizontal segregation pervades at different levels of practice and is undergirded by various elements of gender essentialism Physical essentialism explains why insolvency practice has been traditionally gendered male Interactional essentialism combines with the management of work-life balance to define the subfields of corporate and personal insolvency as masculine and feminine respectively Gender essentialist assumptions also pervade the distribution of roles and the allocation of work tasks Networks are identified as arenas for the reproduction and perpetuation of occupational segregation The findings indicate the continuing potency of gender in everyday professional life, the limitations of diversity-orientated policies and the complexities of formulating transformative agendas

Multinational investment and voluntary disclosure: Project-level evidence from the petroleum industry

Abstract: This paper analyzes the multinational enterprise’s decision to voluntarily disclose information regarding its investments, a choice we term investment transparency. When disclosing investment information, managers must weigh the costs and benefits of reducing asymmetries between the firm and three stakeholder audiences: capital markets, civil society and governments. We use a unique transaction-level dataset of reserve acquisitions by oil-industry multinationals compiled by IHS Herold to examine managerial decisions to reveal or withhold value-relevant information about firm investment. Contrary to the agency-theoretic motivations traditionally ascribed to voluntary disclosure, our results suggest institutional and informational factors drive investment transparency. We find that firms disclose less in cross-border transactions, more when societal expectations of transparency are high, and less when faced with political risk. These results should be of interest to scholars of accounting and international business, as well as managers and policy makers involved in the ongoing debate on transparency in the extractive industries.

“For lack of accountability”: The logic of the price in Ireland’s Magdalen Laundries

Abstract: Ireland’s Magdalen Laundries are now infamous for the damaging impact they had on the lives of the women who passed through them throughout the twentieth century The relationship between the state and the Laundries was constituted using a deliberately informal frame characterised by an excision of the “logic of the price” This wilful disregard for the economic was significant in form and function, and was mirrored within the institutions where the women were “accounted for” in ways that rendered “accounting to” them unthinkable The Laundries functioned for the emerging Irish state as a tool that helped to orchestrate a shared national habitus and to moderate the state’s own account of the role and record of women The way in which the relationship between the state and the institutions was constructed almost 100 years ago continues to mute accountability and to serve the interests of power The closed nature of the institutions now permits an examination of the impact of this deliberate informality This reveals the potentially devastating consequences of the removal of accounting ways of thinking from relationships between the state and private bodies to which pivotal services have been outsourced Analysis of the case using a Bourdieusian frame has implications for accounting as a discipline in public contexts and for the way in which we understand the limits of state responsibility in the case of outsourced or privatised service provision and policy formation

Using negotiated budgets for planning and performance evaluation: An experimental study

Abstract: Budgets are often simultaneously used for the conflicting purposes of planning and performance evaluation. While economic theory suggests that firms should use separate budgets for conflicting purposes this contrasts with existing evidence that firms rarely do so. We address two open questions related to these observations in an experiment. Specifically, we investigate how a planning task that is in conflict with the performance evaluation task affects behavior in budget negotiations and their outcomes. Additionally, we analyze whether a single budget can be effectively used for both purposes compared to two separate budgets. We develop theory to predict that adding a planning task that is in conflict with the superior’s performance evaluation task increases the subordinate’s cooperation in and after the negotiation of a performance evaluation budget. Moreover, we predict that subordinate cooperation increases even more when the superior is restricted to use a single budget for both purposes. Our results broadly support our hypotheses. Specifically, we find that when budgets are used for both planning and performance evaluation, this increases the subordinate’s budget proposals during the negotiation and his performance after the negotiation. These effects tend to be even larger when the superior is restricted to a single budget rather than separate budgets for planning and performance evaluation, particularly with respect to subordinate performance. In our experimental setting, the benefits of increased subordinate cooperation even more than offset the loss in flexibility from the superior’s restriction to a single budget. The results of this study add to the understanding of the interdependencies of conflicting budgeting purposes and contribute to explain why firms often use a single budget for multiple purposes.

Career concerns and accounting performance measures in nonprofit organizations

Abstract: Many in the nonprofit sector view accounting-based performance measures to be overly influential and counterproductive in the evaluation of charities and their leaders. The contention is that such measures are imperfect and often biased, leading to dysfunctional rationing of fundraising and administrative infrastructure. To examine these concerns and the broader question of nonprofit executive incentives, we develop a model of nonprofit executives who are concerned with influencing external perceptions. In doing so, we demonstrate that accounting-based performance measures alter executive incentives in critical ways. In particular, disclosure of the functional classification of nonprofits’ expenses can reduce incentives to overinvest in fundraising and restore investments in programs; at the same time, it also comes with the potential downside of undermining key investments in long-term infrastructure.

Managing audits to manage earnings: The impact of diversions on an auditor’s detection of earnings management

Abstract: This study examines an aspect of earnings management that we refer to as audit management. We define audit management as a client’s strategic use of diversions to decrease the likelihood that auditors will discover earnings management during the audit. Specifically, we examine whether diverting auditors’ attention to either clean financial statement accounts or accounts that contain other errors affect an auditor’s ability to uncover earnings management. Auditors performed analytical review, searching financial statements for unusual fluctuations suggestive of errors. Following prior studies, we seeded an intentional accounting error which created an unusual fluctuation that allowed the client to meet an earnings target. We manipulated whether management provided a diversionary statement that explicitly identified risk in other areas of the audit, and whether those areas were clean or contained other detected errors that had no impact on earnings. We find that auditors’ earnings management detection is worst when they are diverted to clean accounts and best when auditors are diverted to accounts that contain other errors. Our results suggest that managers can potentially exploit an audit management tactic as simple as a diversion to a clean area to reduce auditors’ effectiveness at detecting earnings management. The implications of these findings for audit and decision making research are discussed.