Jessica L. Buchanan’s research while affiliated with Providence College and other places

Although q2 measures how well a pattern of means fits a custom contrast, there is no guidance for what values are “good.” We survey experimental accounting researchers who assess the fit between plots of means and contrast weights as poor, acceptable, good, or excellent. We find that graphical presentation effects and researchers’ individual attributes influence their assessments. This suggests that research needs an ex ante method for evaluating q2, grounded empirically in the wisdom of the crowd across many different presentations, rather than relying solely on the idiosyncratic assessments of individual researchers. Using fuzzy set theory, we develop such a method that researchers can use to characterize q2 = 0.100, for example, as mostly good fit, leaning toward acceptable. Our approach has significant advantages over bright-line cutoffs commonly used for other statistical indices. Overall, our study can improve our discipline’s assessments of fit between experimental results and custom contrast weights. Data Availability: Data are available from the authors upon request. JEL Classifications: M40; M49.

We investigate how rounded (e.g., 10 percent) versus unrounded (e.g., 9.73 percent, 10.00 percent, or 10.27 percent) sales growth forecasts impact investor judgment. We hypothesize that investors are more willing to invest in a company when the degree of rounding matches the amount of forecast uncertainty (i.e., rounded forecasts in more uncertain environments and unrounded forecasts in less uncertain environments). We also hypothesize that managers can offset the negative impact of a mismatch between forecast rounding and forecast uncertainty by using more immediate language in their forecasts. In a first experiment using M.B.A. students as investors, we find a combination of support and partial support for our hypotheses. However, in a second experiment using online workers and a third experiment using M.B.A. students, we fail to find support for our hypotheses. Overall, we fail to find replicable effects of forecast rounding, forecast uncertainty, and language immediacy on investors’ judgments.

Prior research shows that ghost ticking, or documenting audit work not actually performed, is a persistent threat to audit quality. We examine whether requiring self-references in audit workpapers (i.e., “I” performed the test) can effectively curtail ghost ticking, compared to other workpaper language that can be used in practice. We also design and test an alternative to tick marks (symbol-based notation commonly used in workpapers to describe the results of audit procedures), in which auditors select the same description of the procedure performed, but from a prepopulated drop-down list. Consistent with our hypotheses, we find that using both self-references and descriptions (as opposed to tick marks) jointly reduces ghost ticking, compared to when only one (or neither) of these are used. Overall, we demonstrate how two simple and easily implementable changes to language and tick marks can significantly curtail ghost ticking and therefore reduce its threat to audit quality. JEL Classifications: M40; M42.

Informed by Perceptual Deterrence Theory, we conduct multiple experiments to investigate when and how auditor actions can help deter manager opportunism. In Study 1A, we find that managers are less likely to use real earnings management (REM) when they expect auditors to both increase scrutiny and communicate their observations to the board. However, this effect occurs only when managers' operational decisions are inconsistent (versus consistent) with peer behavior. Study 1B findings suggest that increased auditor scrutiny alone (without auditor-board communication) is not likely to deter REM. In Study 2, we find that increased auditor scrutiny with communication to the board effectively deters both accruals-based earnings management (AEM) and REM, reducing the total level of manager opportunism. However, without communication, increased auditor scrutiny deters AEM, but also induces more REM. Our findings highlight the importance of auditor-board communication and demonstrate how auditor actions can contribute to the deterrence of manager opportunism. Data Availability: Contact the authors.