Scholars @Bentley (Bentley University)
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Three Empirical Studies of Internal Audit Quality
Get PDFThis dissertation contains three studies that examine the IAF’s role in corporate governance, factors that lead IAFs to take a deliberate approach to improve IAF quality, and how IAFs influence financial reporting quality in the public sector.
The first study examines factors that are associated with IAF involvement in corporate social responsibility (CSR) auditing. Results suggest that organizations with more formally documented corporate governance guidance and IAF guidance are more likely to engage their IAFs in CSR auditing than those without such documentation. Findings also indicate that IAFs of governmental organizations and those within larger organizations engage in significantly more CSR audit activity than smaller ones. This study is important as stakeholder demand for CSR activity and disclosure is increasing, but generally lacks regulation.
The second study identifies variables that are associated with IAF quality through the use of external quality assessment and improvement programs (QAIP). The results indicate significant positive relationships between use of these programs and use of internal quality assessment programs, IAF performance measures, chief audit executive competence, audit committee involvement with the internal audit, IAF age, internal audit outsourcing status, and the nature of the IAF’s work. The study’s findings provide insights on specific variables that influence a deliberate effort to improve IAF quality through external quality assessment programs, and should be of interest to standard setters, regulators, and stock exchanges that advocate high internal audit quality.
The third study examines the relationship of IAF and quality therein with financial reporting quality in U.S. municipalities. Specifically, I examine the association of the presence of IAFs and the use of IAF quality assessments with audit reportable conditions and restatements. Results indicate significant positive relationships between both the presence of an IAF and use of IAF external QAIPs with reported significant deficiencies in internal controls and that the presence of an IAF is negatively associated with restatements in U.S. municipalities. The study’s findings provide insights on IAF influence over financial statement reporting quality and should be of interest to standard setters, regulators, and public sector leadership as they attempt to improve governmental financial reporting transparency and quality
Promoting Professional Skepticism in the Audit Environment
Get PDFThe objective of this dissertation is to examine professional skepticism in the audit environment and identify methods to promote professional skepticism in an overall effort to improve auditor judgment and decision making. This dissertation is made up of three studies, and each study’s purpose, methodology, and findings are summarized below.
The purpose of the first study is to examine the potential for simple metaphors to prime professional skepticism during an auditor’s professional judgment process. I empirically examine the effectiveness of using metaphors as non-conscious primes to activate a skeptical mindset. The results indicate that priming a skeptical mindset does in fact influence auditors’ judgments as auditors who were primed assessed a higher fraud risk and made corresponding changes to the audit plan. The findings suggest that nonconscious priming represents a powerful and efficient tool for promoting professional skepticism and expert-like judgments.
In the second study, I interview and survey current auditors about the incentives and pressures in the audit environment to better understand factors promoting or inhibiting professional skepticism. The results of the interviews and surveys provide new insight into the audit environment and aid experimental work in the area of incentive structures as an environmental factor influencing auditor decision making. The results also highlight the effect of experience on the perceptions of the incentive structures. Specifically, more experienced auditors were more likely to indicate that the pressure to meet budgets and efficiency targets hinders their professional skepticism.
Finally, in the third study, I experimentally examine the effectiveness of priming skeptical judgments when incentives are present. The findings indicate that when the incentive structure rewards efficiency, the participants are more likely to rely on confirming evidence and are less likely to recommend a write-down amount that is similar to experienced auditors. The presence of a counterfactual prime encourages the search for and reliance on disconfirming information when the efficiency incentive is present. These results support the use of counterfactual priming in practice as a method of enhancing professional skepticism
‘Something really weird has happened’: Losing the ‘big picture’ in emergency service calls
Get PDFThis paper is a single case analysis of an emergency service call in which the caller failed to convince the call taker that the request for service was urgent in what turned out to be a tragic event. The analysis of this call using the techniques and findings of conversation analysis reveals that the actions of both the call taker and the caller created an interactional context in which the “big picture” (the potential for danger), became repeatedly submerged in “small picture” details (such as the identity and location of the caller and her role in the situation). This paper builds on previous research on how callers can fail to construct convincing descriptions of the problem and extends this line of work by exploring how participants make or fail to make inferences in order to construct a gestalt or big picture of the event being reported, how participants manage events that unfold during the call, and how callers convey their identity and role in the situation
Oil, Corruption and Foreign Direct Investment
Get PDFThis paper addresses how oil changes the corruption-foreign direct investment relationship. With the advantage of our panel data set, we are able to account for issues of endogeneity in the causality between foreign direct investment and corruption. We find that corruption has a negative impact on attracting foreign direct investment but this is mitigated based on the amount of oil the receiving country produces. Foreign direct investment inflows are found to reduce corruption in countries, but not if the receiving country is a major oil producer. Results show that poor countries without oil may be using institutional corruption to attract foreign direct investment and that receiving these investments is reinforcing this corruption. The paper’s analysis implies that oil is not only helping more corrupt regimes to attract foreign direct investment, it is also reducing the generally positive institutional benefits from receiving foreign direct investment that most middle and high-income countries receive. The analysis suggests a reinforcing relationship between corruption and foreign direct investment, which could lead to positive or negative spirals in institutional quality. Firms and international organizations must take account of the negative institutional side effects from investing in oil rich countries or when dealing with very poor governments
Information Systems Strategy and the Role of Chief Information Officers: Strategizing and Aligning Practices
Get PDFInformation Systems (IS) pose both a challenge and an opportunity for organizations. The topic of strategizing around IS issues is thus of considerable importance. While there has been substantial academic research relating to the strategic value of IS – over 50 years – much of it focuses on such aspects of the topic as strategic IS planning, strategic alignment, and IS for competitive advantage. Fewer studies have taken into account the emergent nature of strategy formation. Fewer still have given attention to strategy-making practitioners, in particular their role and influence in the strategizing process. Accordingly, the goal of this dissertation is to provide a more comprehensive picture of IS strategizing processes and practices, with all their nuances, with particular attention being paid to the human actions and interactions of strategymaking: bringing to the foreground the strategists in other words. The dissertation consists of three stand-alone studies that are captured in the three essays that follow the introduction. The first two studies extend the conceptualization of IS strategy. The third is an empirical study that focuses on the role and influence of Chief Information Officers (CIOs) in IS strategizing. Overall, the dissertation contributes to a better theoretical understanding of IS strategizing practice and explicitly identifies components, activities, and actors involved. The research provides a newly developed integrative framework for IS strategizing and a list of aligning activities, and goes on to provide a perspective on IS strategizing that incorporates considerations of power and influence. For practitioners, the research presents managers with concrete levers for improved practice
The Relationship between Accounting Processes and Interpersonal Trust within Organizations
Get PDFTrust is an increasingly critical determinant of organizational success. This dissertation consists of three studies investigating the relationship between firms’ accounting processes and interpersonal trust. Using survey data from Great Place to Work® Institute, the first study investigates the association between trust (i.e., employees’ trust in management) and three aspects of financial reporting: accruals quality, misstatements, and internal control quality. Results suggest that trust is associated with better financial reporting quality. However, these effects are not uniform across companies. Consistent with trust improving financial reporting quality through improved information production and information sharing, results suggest that trust is significantly associated with financial reporting quality in relatively decentralized firms, but not in firms that are relatively centralized.
The second study extends prior research that finds a positive effect of controls on trust in collaborative settings by investigating the effect of controls on trust in a noncollaborative setting, where reciprocity is less likely to influence behavior. Using a two-stage game in which half of the participants (“managers”) work together in a cooperative task and the other half of the participants (“observers”) observe the managers’ behavior, this study finds support for the concern that reciprocity can explain a significant portion ix of the control’s effect on individuals’ behavior in the collaborative setting; however, the control still has a positive effect on trust in the non-collaborative setting, where reciprocity is less prevalent.
The third study investigates the effect of group-level controls on employee effort and coworker trust. Prior research is limited to controls in one-on-one settings (i.e., one individual imposing a control on another). In contrast, controls in the workplace are often imposed at the department, or organizational level, where they are less clearly a signal of mistrust. Despite this ambiguous signal, I find that restrictive controls have a negative effect on employee effort even when the control is imposed at the group level. However, I find that group-level controls have a significantly more positive effect on coworker trust than individual-level controls. Finally, I find that controls have a more negative effect for more trustworthy employees, in terms of both employee effort and coworker trust
Firm-Level Corporate Governance in the Context of Emerging Market Firm Internationalization
Get PDFThis dissertation focuses on internal corporate governance structures, ownership and boards of directors, of emerging market firms (EMNEs). In the context of recent and rapid internationalization, this research aims to make empirical, theoretical and policy contributions. In the first decade of the 21st century, EMNEs became a defining feature of global investment. Emerging market economies attract more than half of global FDI inflows and are counted among the top-20 global investors (World Investment Report, 2011). Explanations of EMNE activity should be grounded in established international business theory; this allows for insights possible through a corporate governance lens.
However, the study of EMNEs requires multi-country data reflecting the recent transition of the firms to engage in FDI. A unique dataset was constructed by the author to fill a gap where “virtually no systematic research” exists (Geiger, 2008). EMNEs are identified from the Fortune Global 500, 2011 list of the largest firms worldwide (by revenue). They represent 19% of the list, with firms from the BRIC countries (Brazil, Russia, India, and China) dominating the subset. Data collection focuses on the internal mechanisms of corporate governance: boards of directors and ownership structures.
This dissertation consists of three papers. The first presents a comparative case method investigation on corporate governance systems of the BRIC as informed by the EMNEs representing them. The paper highlights commonalities and key differences between countries generally grouped as one market. The second study uses quantitative methods to understand the adaptation of internal mechanisms toward the current global standard (functional convergence), independently of country-level institutions. The third paper is a case study on internationalization patterns of seven Petroleum EMNEs, based on the Two Wave approach expanded by Narula (2010), and relationships to board structure and director attributes. As the context of study, EMNEs matter because as multinational firms they “are the principal mechanism through which many of the benefits of globalization are achieved, but also through which many of its problems are realized” (Stiglitz, 2008: 319)
Performance Feedback in the Audit Environment
Get PDFThis dissertation consists of three studies that investigate key elements related to performance feedback and effective coaching in the audit environment. The first study presents a framework based on prior research in the psychology and management literatures on the behavioral effects of performance feedback. This framework is then used to organize and synthesize the literature on feedback in the audit setting, and develops topics for further study.
The second and third studies are empirical investigations of performance feedback provided during the audit review process. The second study uses an experiential questionnaire to examine the perceptions of subordinate auditors based on their actual experiences with the review process. Specifically, I study how the supervisor’s approach (i.e., sign of performance feedback and achievement goal emphasis) and the subordinate’s receptivity to coaching and feedback (i.e., feedback orientation) combine to affect the subordinate’s reactions and subsequent actions. In practice, audit supervisors are likely to provide some positive and/or negative feedback (i.e., sign of performance feedback) during their review, and have the opportunity to also emphasize specific achievement goals (i.e., learning or performance). However, supervisors are likely to vary in the amount and combination of feedback and goals. This is important because achievement goal theory suggests that emphasis on learning or performance goals may result in differential response patterns following feedback. This study uses a naturalistic approach which allows me to consider a number of features of the review process simultaneously, but because of this I cannot conclude a causal relationship. The third study addresses this limitation by manipulating the sign of performance feedback and the achievement goals emphasized by the reviewer in a controlled experiment.
The results of parts two and three indicate that alignment of the sign of performance feedback and achievement goals (e.g., negative feedback and learning goals) positively affects subordinates’ reactions to the review and the reviewer, efforts to improve performance, as well as actual performance. In addition, I find that these effects vary depending on the feedback orientation of the preparer. Taken together, the results suggest that audit supervisors should ix consider how they conduct reviews, as well as the characteristics of the subordinate who is receiving the review, to improve subordinates’ reactions to feedback, as well as to increase coaching effectiveness and elicit better performance
The Impact of Collective Intelligence and Honest Signaling on Fraud Brainstorming Effectiveness: A Sociometric Investigation Using Wearable Sensor Technology
Get PDFThis dissertation investigates the impact of collective intelligence and honest signaling on the fraud risk brainstorming effectiveness of audit groups. Emerging research in psychology shows that collective intelligence, which captures the general ability of a group to perform a wide variety of tasks, is a strong predictor of group performance. Honest signals are nonverbal communication cues that are either so costly to make or difficult to suppress that they are reliable in signaling intent.
The first study of this dissertation provides a summary of extant literature examining collective intelligence and honest signaling, with an emphasis on those studies that have implications for the task performance of accounting groups. I also examine the research use and potential of sociometric badges, a special wearable sensor technology that measures paralinguistic honest signaling by capturing fine-grained data on individuals’ intra-group patterns of vocal, nonverbal interaction. Additionally, I propose several avenues for future research that will contribute to academic literature as well as practice. In the second study, I conduct an experiment to study the effect of collective intelligence and honest signaling on fraud brainstorming effectiveness. I employ a between-subjects viii design in which 41 audit brainstorming groups, comprising 152 upper-level accounting students, are assigned to either an electronic or a face-to-face group condition. I hypothesize and find that both collective intelligence and brainstorming mode influence fraud brainstorming effectiveness, and that electronic groups are more effective than faceto-face groups. This latter effect, however, is contingent on brainstorming mode: high collective intelligence improves the brainstorming performance of electronic groups more than that of face-to-face groups. Neither average member intelligence nor maximum member intelligence is predictive of brainstorming effectiveness. These results imply that process losses associated with face-to-face brainstorming attenuate the countervailing beneficial impact of high collective intelligence. Speaking turn variance, as measured by sociometric badges, is negatively correlated with both collective intelligence and fraud brainstorming effectiveness. These findings suggest that members of higher performing brainstorming groups participate more equally in group conversations and that are better at reading social signals, as compared to members of less effective groups
The Impact on Health of Recurring Migrations to the United States
Get PDFConsiderable research has focused on whether or not immigrants’ health declines to match that of comparable native-born people. This immigrant health convergence is hypothesized to be driven by immigrants’ acculturation to American society and habits. This is particularly problematic for a country such as the United States which combines a high number of immigrants, bad health habits among the native born, and an expensive health care system. Previous research in this literature uses the duration of an immigrant’s current stay in the United States as the measure of exposure to acculturation. Using the duration of the immigrant’s current stay in the United States implicitly assumes one long-term move. However, the largest immigrant group in the United States (Mexicans) is characterized by a pattern of repeated migration trips. This paper separates out the effects of migration duration and lifetime cumulative experience for Mexican immigrants to the United States. The empirical analysis is carried out using data from the Mexican Migration Project. The Mexican Migration Project has been collecting data on Mexican immigrants to the United States since the mid1980s. Empirical results find that while overall time spent in the United States supports the acculturation hypothesis, single-trip migration duration has the opposite effect. The positive impact of single-trip duration on health is likely caused by recovery time needed to compensate for difficult crossings into the United States which have an even harsher effect on health if the individual undertakes short, repeated migrations. We also find that having Latino friends improves health while Anglo friends cause faster convergence and worse long-term health impacts. Both support the acculturation hypothesis. Results suggest that researchers need to focus on the cumulative impact of time spent in the United States rather than relying on just the duration of the latest trip. This suggests a much larger negative effect of migration on health than studies relying solely on migration duration. In the case of repeated migration patterns, this imposes costs on both the health care systems of the destination (USA) and source (Mexico) countries. Repeated immigration to the United States can result in acculturation which causes bad health habits to be brought back to Mexico, along with the accompanying costs these incur