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The purpose of this study is to identify a psychological profile for public accounting firm partners who are likely to place the partnership and client shareholder at risk. Proprietary data from an executive counseling firm provided a unique opportunity to compare two groups of partners: those identified by their senior partners as placing the firm at risk (n=31) and those not so identified (n=64). The groups were compared using psychological measures, lifestyle measures, personal measures, and work history variables. Results found no significant measurable difference between the audit partners who were identified as posing a risk and those not so identified. This suggests that specific factors cannot lead a partner to engage in risky behaviors, but rather several, in combination, may be necessary. Implications for research include learning more about concepts such as resistance to temptation, motivation, and rationalization. Implications for practice are to focus on structuring business practices to provide early warning signs and minimize opportunities to engage in risky behavior. Continued and increased diligence in the client screening and client continuation and review process remain essential for best practices.

Extant theory tends to treat Organizational Culture (OC) and fraud-related values as static, characterizing culture as synonymous with potential ethical values − but devoting less attention to how the culture and values arose and where they are headed. Buffer/conduit theory proposes that accountants learn to use a taxonomy containing three dynamic layers: collective fraud orientation, a buffer/conduit layer, and individual fraud orientation. The middle layer contains OC-related internal controls that buffer the orientation layers from spreading fraud-encouraging values, and serve as conduits transmitting fraud-deterring values − or, when controls do not function as intended, transmitting fraud-encouraging values. A factor analysis of 11 indicators of this three-layer taxonomy suggests that older generations of accounting practitioners apply the taxonomy, but millennials do not. Predisposition to commit fraud is especially salient to internally focused millennials, who uniquely perceive recruitment and training as compensating mechanisms and as collective buffers.

This exercise exposes students to complex lease transactions, requiring research in the FASB Accounting Standards Codification, archived standards, and future standards (exposure drafts (ED)).

Case study/exercise/assignment.

Students analyze how a retail establishment examines lease transactions to ensure its practices are in line with its mission. Students gain experience researching archived, current, and future standards. Student feedback suggests that students feel the exercise is valuable because it reinforces what they learned in earlier courses and it requires them to understand all aspects related to capital and operating leases. Furthermore, direct assessment data based on grading rubrics indicates that most students meet instructor expectations and indirect assessment data based on student perceptions indicates students are meeting the exercise learning outcomes.

This learning exercise fosters critical thinking skills; emulating professional practice issues and enhancing written and communication skills. It reinforces graduate students’ undergraduate learning related to leases.

Prior research suggests that perceived levels of a subordinate auditor’s competence affects audit reviewers’ judgments. We extend this line of research by investigating the effects of perceived client competence (hereafter, ClientComp) and its interaction with subordinate auditor’s competence (hereafter, AuditorComp) on audit reviewers’ judgments. Using data from highly experienced CPA audit managers, senior managers, and partners, we find a significant main effect for AuditorComp, but not for ClientComp. We also find that when AuditorComp is high, levels of ClientComp do not affect audit reviewers’ judgments. However, we cannot support the hypothesis that when AuditorComp is low ClientComp will significantly affect audit reviewers’ judgments. These mixed results suggest that in the post-SOX (2002) era regulatory environment, audit reviewers may be exercising heightened professional skepticism about ClientComp whenever they consider clients’ assertions.

Compare and contrast how the accounting, organizational behavior and other literatures analyze sunk costs. Sunk costs form a key part of the decision-making component of the management accounting literature, which generally include previously incurred and unrecoverable costs. Management accountants believe, since current or future actions cannot change sunk costs, decision makers should ignore them. Thus, ongoing fixed costs or previously incurred sunk costs, while relevant for matters of accountability such as costing, income determination, and performance evaluation are irrelevant for most short- and long-term decisions. However, the organizational behavior literature indicates that sunk costs affect decision makers’ actions – especially their emotional attachments to the related project and the asymmetry of attitudes regarding the recognizing of losses and gains. Called the “sunk cost effect” or “sunk cost fallacy,” this conflict in sunk costs’ underlying nature reflects one element of incoherence in contemporary accounting discourse. We discuss this sunk cost conflict from an accounting and a philosophical perspective to denote some ambiguities that decision usefulness and accountability introduces into accounting discourse.

Review, summarize and analyze the above literatures

Managerial accountants can apply many lessons from the various literature sources.

We also show how differing opinions on how to treat sunk costs impact a firm’s decision-making process both economically and socially.