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Using experimental scenarios, the current study suggest that the management accountants’ professional attributes social obligation, professional autonomy, professional affiliation, and professional dedication are associated with three ethical rationales that have been identified as playing important roles in ethical judgment, the perception of the ethicality of an action; moral equity, contractualism, and relativism. Understanding these issues will assist in determining the management accounting professional attributes that should be fostered in encouraging the ethical judgments of management accountants since research indicates that the moral equity and contractualism rationales are consistent with individuals at the post-conventional stage of ethical development and more ethical judgments while the relativism rationale is consistent with the conventional stage of moral development and less ethical judgments.

Research in psychology and accounting suggest that affect (client likeability) toward a person can impact human judgment, resulting in more favorable treatment for likeable than dislikeable individuals. This study investigates whether two debiasing mechanisms, justification and self-review, mitigate the impact of affect (client likeability) on fraud risk assessments. Consistent with prior research on nonfraud audit judgments, this study finds that in absence of any debiasing mechanism, inexperienced auditors are susceptible to affect biases in fraud judgments. Extending prior research, we find justification is not sufficient to mitigate likeability, but self-review is an effective mechanism to mitigate the effect of client likeability in a fraud judgment task. Supplemental findings indicate that general accounting experience, in itself, does not mitigate client likeability; however, the effectiveness of the self-review mechanism extends to these participants.

This chapter details the standard-setting methods used in the development of the NBPTS assessments. The dominant Profile Judgment Method was originally applied only to the NBPTSs Early Adolescence/English Language Arts assessment (EA/ELA). Although extremely flexible, it proved to be too complex, and increased the likelihood of false-negative errors in candidate classification. The Direct Judgment Method was found to be combatively economical; however, it was the Judgmental Policy Capturing (JPC) approach that was used since its approach was more akin to the everyday judgments we all make. The two-stage process of the JPC method will be describe in detail, using the standard-setting process used with the Early Adolescent through Young Adult/Art (EAYA/A) Assessments as an example.

Purpose – In this chapter, we seek to resolve the conflicting implications that emerge from status quo theories of justice, on the one hand, and theories of distributive, procedural, and interactional justice on the other. Specifically, status quo theories depict individuals as resistant to perceptions of injustice in their social environments, whereas theories of distributive, procedural, and interactional justice depict individuals as quite sensitive to the justice that characterizes outcomes and treatment.

Methodology/approach – We build on previous research on the justice judgment process to consider ways in which the findings from these two research streams can be integrated.

Findings – We suggest that the two overarching streams of research have identified and empirically explored two distinct modes of justice evaluation: a system justification mode and a system critique mode.

Originality/value of chapter – We develop a model of the justice judgment process that specifies the circumstances under which each of the two modes is likely to operate.

This study investigates how disclosure of the board of directors’ leadership and role in risk oversight (BODs oversight disclosure) influences investors’ judgments when information on risk exposures is disclosed. The theoretical lens through which we examine this issue involves negativity bias. Sixty-two stock market investors who engage in the evaluation and/or investment of stocks on a regular or professional basis participated in our study. Our results reveal that the addition of BODs oversight disclosure (positive information) does not carry significant weight on investor judgments (i.e., attractiveness and investment) when financial statement disclosures indicate a high level of operational and financial risk exposures (negative information). In contrast, under the condition of a low level of risk exposures, BODs oversight disclosure causes investors to assess higher risk in terms of worry, catastrophic potentials and unfamiliarity about risk information and, in turn, make less favorable investor judgments. Our findings add to the literature on negativity bias and contribute to the debate on the usefulness of disclosures about risk.

According to the SEC, the proposed roadmap for adopting principles-based International Financial Reporting Standards (IFRS) is still a priority. The adoption of IFRS will ultimately demand greater emphasis on practitioner judgment (Mintz, 2010). This chapter focuses on the need for building the judgment skills of the practitioner. Our methodology follows a three-step process. We start with accounting standards, reviewing similarities and differences between “rules-based” and “principles-based” standards and conclude that, while applying any standard requires judgment, applying principles-based standards requires more judgment. We then focus on preparer incentives that can influence this requisite judgment. We use the “fraud triangle” to analyze the influence of incentives on judgment under each standards setting approach. Our third and most important step involves equipping practitioners to make judgments in the presence of incentives. We present and discuss a model that considers economic, social (legal), and ethical dimensions for making principled judgments in the presence of incentives and advocate-improved education for accountants in implementing that model.

This study aims to demonstrate how pressures (incentives) in the audit environment can lower audit quality because of a breakdown between professionally skeptical (PS) judgment (risk assessment) and PS action (testing).

The authors used a Qualtrics-based experiment with attitude change as a proxy measure of cognitive dissonance (CD). The authors analyze the results using a one-way independent between-group ANOVA with post hoc tests and t-tests.

The authors find that auditors experience CD when they fail to take appropriate high PS action (audit tests) that are in line with high PS judgment (risk assessments). The motivational force to reduce CD drives auditors to revise their assessments upward (rank higher), lower diagnostic audit tests (PS actions) and lower risk assessments (PS judgments). This leads to lower overall professional skepticism, and hence lower audit quality.

This investigation provides an empirical investigation of Nelson’s (2009) model of professional skepticism and demonstrates a specific mechanism for how incentives in the audit environment lower audit quality. Based on the findings, treatments to enhance audit quality can benefit by strengthening the critical link between PS judgments (risk assessments) and PS actions (audit tests).

Organizational legitimacy is a central concept in institutional theory and in the more recent stream of communicative institutionalism. Within this scholarship, there exists an elaborated understanding of how macro-level actors, such as news media, influence individual judgments at the micro-level through a top-down communication process. However, little is known about the upward process by which individual propriety judgments influence validity judgments of news media at the macro-level. In this paper, we propose that this upward process of the legitimacy loop is facilitated by the degree to which expressed propriety judgments by individuals create thematic broadness, which bridges stand-alone conversations. Through a study investigating a post-scandal phase in the financial sector, we show how propriety judgments in social media become pre-validated at the meso-level prior to their validation by news media at the macro-level. The presented theoretical framework and empirical insights based on time-series regression analysis provide new knowledge about the multilevel process of organizational legitimacy formation in a digital age and extend our understanding of how a consensus is revealed at the meso-level.

Part V analyzes the details of how to assess materiality. It first tackles qualitative versus quantitative criteria and the role of professional judgment. It then analyzes the selection of quantitative threshold, to expand to the choice of benchmarks. It contrasts the whole financial statements with subaggregates, line items, and components.

Specific sections contrast IASB, FASB, SEC, and other guidance on materiality applied to comparative information, interim reporting, and segment reporting.

The section on estimates mingles complex guidance coming from accounting, auditing, and internal control over financial reporting to explain how the management can improve its assessment of materiality concerning estimates.

After explaining the techniques to move from individual to cumulative misstatements, the part tackles verification ex post, and finally summarizes the intricacies of whether immaterial misstatements are permissible and their consequences.

This study extends prior cross-cultural research by examining the effects of both cultural and noncultural factors on the judgments of professional accountants. It examines the extent and the cause of differences in judgments of professional accountants in Australia and Fiji when interpreting and applying selected International Financial Reporting Standards (IFRS). A comparative study between these two countries, which have both adopted IFRS, provides empirical evidence that IFRS are not interpreted and applied consistently. It supports the views that: (a) both national culture and organizational culture (Big 4 and non-Big 4 firm affiliations) have a significant effect on the manner in which professional accountants in a country interpret uncertainty expressions contained in IFRS; and (b) national culture and organizational culture interact to influence the judgments of professional accountants. Further, the results of the effects of noncultural factors on the judgments of professional accountants in Australia and Fiji show that the professional accountants' perceived level of task complexity has a significant effect on their judgments. An important implication of this study is that the adoption of IFRS in different countries alone may not result in uniformity in financial reporting as IFRS may not be consistently applied by those countries because of differences in cultural as well as noncultural factors.