Beyond Perceptions, Crafting Meaning: Volume 21

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(6 chapters)


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This experimental study examined whether sustainability performance measures matter in managerial appraisal and bonus decisions. Participants received financial and non-financial information about four branch managers of a commercial bank, with different combinations of sustainability and financial performance. Participants perceived sustainability measures as being less important than financial ones; still, the experiment revealed that sustainability performance had some impact on appraisal and bonus decisions (albeit it mattered less than financial performance). Evaluators seemed to penalize inferior sustainability performance less than they penalized inferior financial performance. They also seemed to reward sustainability success less than financial success. These findings have practical implications for the implementation of sustainability measures in managerial evaluation systems. The experimental results indicated that incorporating these measures in evaluations does not necessarily mean they will have a sizable effect in decision-making. Results from a companion experiment suggested that organizations using a sustainability balanced scorecard for appraisal and bonus purposes might benefit from an increased emphasis on communication and evaluator training, with a focus on how sustainability performance impacts the attainment of strategic objectives.


In 1954, the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure released an auditing book, which listed under the heading “Material” certain items of which it cautioned “material errors” could occur (AICPA, 1954, p. 1). From this date until the present, the accounting profession has struggled in its endeavors to find both a suitable definition and associated guidance to determine the materiality of information provided to financial statement users. Accordingly, in September 2015, the Financial Accounting Standards Board (FASB) issued two exposure drafts that address the concept and interpretation (our emphasis) of materiality. The releases are Proposed Amendments to Statement of Financial Accounting Concepts, Conceptual Framework for Financial Reporting; Chapter 3: Qualitative Characteristics of Useful Financial Information (Financial Accounting Standards Board (FASB), 2015a) and Proposed Accounting Standards Update, Notes to Financial Statements (Topic 235) Assessing Whether Disclosures Are Material (FASB, 2015b). In this article, the authors focus on the Chapter 3 amendments (FASB, 2015a), which proposes a new definition whose genesis is based on the US Supreme Court definition of the concept. Accordingly, the authors examined the views of two stakeholders in the US financial reporting system, auditors in large public accounting firms, and Chief Financial Officers of the Fortune 1000 companies, regarding their perceptions of the proposed definition. The authors developed the research instrument to evaluate their perceptions of the proposed definition’s potential impact on various aspects of the audit and financial reports. The authors found that both populations have negative perceptions of the materiality definition in the exposure draft and an interpretation of the responses did not indicate an addition of any benefits from its adoption. Subsequent to our solicitation for our subjects’ opinions, the FASB voted unanimously in November 2017 to remove the reference to materiality as a legal concept (FASB, 2017) and in August 2018 (FASB, 2018) amended FASB Concept Statement No. 8 to replace the materiality definition with language similar to the previously superseded FASB Concept Statement No. 2. However, as the authors will explain in this article, the fact that three authoritative definitions exist, which continue to present problems for financial statement preparers and auditors. In this analysis, the authors find evidence that auditors and investors continue to see a significant difference between the terminology of “users” and “reasonable resource provider” within the various materiality definitions.


The United States Securities and Exchange Commission (SEC) issued an interpretative release ostensibly mandating the disclosure of the impact that climate change may have on the registrant. One means of enforcement for this release is through the use of comment letters. Prior empirical studies have supported the argument that the SEC oversight through issuing comment letters is effective in enhancing the quality of firms’ disclosures (Asthana & Boone, 2009; Johnston & Petacchi, 2017). With a total of 27 comment letter cases (34 comments based on the topics) regarding climate change disclosure, we do not find clear evidence strongly supporting that the SEC implements its oversight process through systematic procedures and that SEC comment letters enhance the quality of firms’ climate change disclosure. Although some firms responded to the comments proactively, qualitative analysis reveals that the firm’s revisions were not sufficient to provide useful information for market participants in general. The overall finding suggests that the current oversight mechanism for climate change disclosure needs to be significantly improved to enhance the quality of firms’ climate change disclosure.


The London Interbank Offered Rate (LIBOR) is considered to be the most important interest rate in finance upon which trillions in financial contracts are decided. In 2008, it was revealed that the LIBOR traders were rigging the interest rates. Yet, there is an unresolved question that regulators and banking officials did not address in their quest to seek answers to the fraud: Were the banks under financial strain when they underreported their LIBOR rates? To answer this question, the article posits that the pressure to meet market expectations led the banks to experience financial strain. Data were gathered from 2004 to 2008 on the banks that were involved in the fraud (fraud banks) and matched with a control group of non-fraud banks. The results from a logistic regression model found sufficient statistical evidence to support the claim that fraud will be greater in banks characterized by a higher level of organizational complexity. Variables such as percent of outside directors, board members on the audit committee, and number of employees were all found to be statistically significant. These variables may offer key insights into detecting and preventing frauds in banks.


The purpose of this study is twofold. First, the author posits and finds a significant positive relation between environmental performance (i.e., environmental efficiency) and firm performance (i.e., firm efficiency) by using a large panel sample from 1987 to 2015. The results are consistent with the notion in prior research (e.g., Porter, 1991; Porter & van der Linde, 1995) that pollution indicates a form of resource inefficiency and reducing pollution can increase firm performance. Second, managerial ability has recently received tremendous research attention. The author investigates the impact of managerial ability on the relation between environmental efficiency and firm efficiency and finds that the results are mainly driven by firms with low managerial ability.

Cover of Beyond Perceptions, Crafting Meaning
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Advances in Public Interest Accounting
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Emerald Publishing Limited
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