The ability of professional standards to mitigate aggressive reporting

Article Abstract:

Two experiments are conducted in a tax setting to determine if the substitution of a professional standard using a vague, verbal disclosure threshold for a standard using stricter, numerical thresholds diminishes the aggressiveness of reporting decisions. Findings suggest that numerical thresholds may not be effective in discouraging aggressive reporting because tax practitioners find a way to justify their aggressive decisions whether the thresholds are verbal or numerical. When the professional standard is verbal, tax practitioners defend their aggressive reporting decisions by exploiting the latitude inherent in the standard's vague language. On the other hand, when the standard is numerical, tax preparers justify their aggresssive reporting decisions by exploiting the latitude found in assessing evidential support.

Trust, Fiduciary, and Custody Activities, Estate & Tax Planning, Tax consultants, Estate planning, Business reports

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Auditors' incentives and their application of financial accounting standards

Article Abstract:

A study was conducted to examine application of financial accounting standards by auditors. In the experiment, auditors were asked whether or not they will permit a client to use an aggressive reporting method when they have an incentive to do so. The participants were also required to support aggressive reporting through interpretations of financial accounting standards. Results showed that the auditors responded to moderate engagement risk by allowing the client to employ the aggressive reporting approach and rationalize their decision with aggressive interpretations of accounting standards. They responded to high engagement risk by allowing only conservative reporting and justified it with conservative interpretations of accounting standards.

Accounting

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The effect of experience on the use of irrelevant evidence in auditor judgment

Article Abstract:

A study ascertained if experience moderates the effect of irrelevant information on auditor judgment. Prior studies have demonstrated that irrelevant information lessens the impact of relevant information and labeled this phenomenon as the dilution effect. However, these did not address the role of experience in the use of irrelevant information in auditor judgment. This study required 56 partners and managers, who were lumped into the experienced subject group, and 31 audit seniors, who were assigned to the inexperienced subject group, to assess the ability of a firm to continue as a going concern. Findings revealed that experience weakens the influence of irrelevant information on auditor judgment. Implications are discussed.

Judgment, Judgment (Psychology), Experience, Relevance

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