Research

Prepopulating Audit Workpapers with Prior Year Assessments: Default Option Effects on Risk Rating Accuracy

Journal of Accounting Research

May 2018 (SSRN|Wiley)

with Sarah Bonner and Tracie Majors

ABSTRACT: Risk assessment is a critical audit task, as auditors’ accuracy therein affects audit effectiveness and financial reporting quality, as well as audit efficiency. We propose that risk assessment accuracy for client risks that have changed from the prior year is affected by the manner in which auditors access prior year risk assessments, specifically whether they face a default option created by the prepopulation of current year workpapers with those assessments. We find that auditors with prepopulated (vs. blank) workpapers are less accurate for risks that have changed because they are more likely to stick with last year's assessments, and also to work fast. We then show that auditor characteristics reflecting a preference for accuracy reduce, but do not eliminate, these effects. Finally, we provide exploratory evidence that sticking and working fast are associated with, respectively, motivated reasoning and superficial processing. Collectively, these findings suggest the critical need for an intervention, and also have implications outside auditing.

This project is based on my first-year summer paper in the Ph.D. program and was inspired by my work experiences at both Deloitte and PwC.

The popular press has recently taken notice of this "delightful paper!" Matt Levine, a BloombergOpinion editor, discussed this paper's wide implications as applicable to "pretty much every document in finance," and warned his readers that "just starting from the [prior] precedent creates the risk that you'll just skip over what needs changing (link)."

Insider Editing on Wikipedia

ABSTRACT: I assemble a unique dataset covering 19 years and with over 30 million observations on the edits made to the Wikipedia pages of firms in the Russell 3000 index. I create a measure that is able to indirectly detect the edits made by corporate insiders. I find that inside editors bias their firms’ Wikipedia pages by systematically adding positive words and removing negative words about the firm. I further provide evidence that bias and insider editing are attenuated after an exogenous shock which increased the reputational costs of making self-serving edits. Finally, I relate biased edits made by firm insiders to firms’ financial misstatements, suggesting that biased insider editing on Wikipedia is related to lower financial reporting quality.

Dissertation Chair: Clive Lennox, USC Associate Professor of Accounting

Corporate Social Responsibility and the Implications of Perceived Authenticity

ABSTRACT: Firms are increasingly investing in Corporate Social Responsibility (CSR) initiatives to incentivize employees and attract investors. However, recent experimental studies find that these costly investments may backfire when firms are perceived as having strategic incentives for making CSR investments. Using a novel measure, capturing stakeholders’ perceptions of CSR authenticity observed on Wikipedia, I examine how these perceptions influence firms’ returns on CSR investments.

The Disciplining Effects of Appearing Incentivized to Over-Report

ABSTRACT: While it is widely suspected that contingent incentives motivate managers to over-report their firm’s financial performance, surprisingly there is no evidence of this in archival or experimental studies. I expect this is because managers face reputational costs when these contingent incentives make them appear motivated to over-report. In an experimental setting, I exploit variation in the level of concern managers hold for how others view them, and I find that contingent incentives reduce over-reporting in concerned managers. This study provides the first evidence that contingent incentives can be used as a mechanism to discipline unethical behavior, particularly when managers hold a high concern for appearing motivated to over-report.