The Certified General Accountants' Associations and the University of Manitoba
1998 Accounting Research Mini-Conference
Schedule
(see below for abstracts)

Friday, April 24:
11:30 Dan Simunic, University of British Columbia "Auditing Research, Practice, and Education: A Productive Collaboration".
12:30 reception / light luncheon 517 Drake
2:00 Jane Kennedy, University of Washington "Debiasing Professional Judgment: A Framework and Experiments" with Bob Ashton, Duke University
3:30 coffee
4:00 Cam and Janet Morrill, University of Manitoba "Internalizing the External Audit: A Transaction Cost Approach"
7:00 dinner East India Company
Saturday, April 25:
9:00 Alastair Murdoch, University of Manitoba "The Impact of Accounting Standard Changes: The Retractable Preferred Shares Case"
10:30 coffee
11:00 Senyo Tse, University of Texas at Austin "The Effect of Limited Liability on the Informativeness of Earnings: Evidence from the Stock and Bond Markets" with Elizabeth Plummer, Southern Methodist University
12:45 lunch Tartan Room
2:00 Ron King , Washington University at St. Louis "An experimental investigation of retention and rotation requirements" with N. Dopuch and R. Schwartz
3:30 coffee
4:00 Dan Simunic University of British Columbia
"A Spatial Analysis of Competition in the Market for Audit Services" with Jerry Feltham, UBC, and Derek Chan, Hong Kong University of Science & Technology
7:00 dinner Muddy Waters Smokehouse

The conference will be held in room 530 of the Drake Centre, which is located at 181 Freedman Crescent on the campus of the University of Manitoba. The campus is situated 20 minutes south-west of downtown and about 25 minutes south-east of the Winnipeg International Airport.
Rooms are available at the Holiday Inn Crowne Plaza (in downtown). Reservations may be made by phoning 1-800-227-6963. Accommodation closer to the university is available at the Comfort Inn (1-800-228-5150), the Holiday Inn Winnipeg South (1-800-465-4329), or the Norlander Inn (204-269-6955).

For more information contact Alastair Murdoch at
Phone: (204) 474 - 8439
Fax: (204) 474 - 7545
E-mail: alastair_murdoch@UManitoba.ca

List of Participants

Phil Berger Wharton School
Ken Clowes Brandon University
Dee Ann Ellingson University of North Dakota
Gwyneth Jones Certified General Accountants' Association of Manitoba
Jane Kennedy University of Washington
Ron King Washington University at St. Louis
Usha Mittoo University of Manitoba
Cam Morrill University of Manitoba
Janet Morrill University of Manitoba
Charles Mossman University of Manitoba
Alastair Murdoch University of Manitoba
Fred Phillips University of Saskatchewan
Wendy Schultz University of Manitoba
David Senkow University of Regina
Dan Simunic University of British Columbia
Senyo Tse University of Texas at Austin

Conference Sponsors

Certified General Accountants' Association of Manitoba
Faculty of Management, University of Manitoba
Certified General Accountants' Association of Alberta
Certified General Accountants' Association of Saskatchewan
Certified General Accountants' Association of Ontario

Abstracts

Friday, 11:30: Dan Simunic, University of British Columbia
"Auditing Research, Practice, and Education: A Productive Collaboration".

The title is taken from the AAA Auditing section monograph published in 1995. However, the talk is quite different from the monograph and summarizes Dan's views on where we've been and where we're going in auditing research, and the interaction of that research with the classroom and practice. Among other things, he will outline the major research areas that have been explored, the key issues findings in each area, and their impacts on education and practice. While the AAA monograph is largely restricted to research on the audit "process", he takes a broader view and also explore the research on the economic environment in which audits occur.
The talk is intended to appeal to a mixed audience of academics, practitioners, and students. He has done versions of this in Hong Kong and in Sweden to such audiences, and it has been well received.

Friday, 2:00: Jane Kennedy, University of Washington
"Debiasing Professional Judgment: A Framework and Experiments" with Bob Ashton, Duke University

This paper investigates the extent to which a pervasive judgment bias in a critically important phase of a financial audit can be eliminated by four extremely simple "debiasers." These debiasers follow from a new debiasing framework (presented in this paper) which contends that debiasing is most effective when it focuses on the causes of biased judgments. The framework proposes that three broad causes of judgment biases--motivational, cognitive, and task-related—are likely to degrade judgment performance in many applied settings, and it focuses attention on motivational, cognitive, and task-related debiasers. Moreover, to increase the likelihood that the debiasers we study will actually be used in audit practice, we concentrate on debiasers that are extremely simple, easy to implement, and virtually costless.
We focus on the recency bias (weighting more heavily evidence received later in a sequence of information items), which often has been found to impact audit judgment. The substantive decision setting that we examine is going-concern evaluation, which auditors regard as both a difficult and critically important step in the audit process. We argue that all three causes of judgment bias—motivational, cognitive, and task-related—are likely to operate in the going-concern setting, and we apply our debiasing framework to this setting by testing four debiasers (one motivational, one cognitive, and two task-related) that we hypothesize will eliminate the recency bias. The results may also provide additional insights about the impacts of debiasers on judgments and choices in the going-concern setting.

Friday, 4:00: Cam and Janet Morrill, University of Manitoba
"Internalizing the External Audit: A Transaction Cost Approach"

Recent pronouncements by professional accounting bodies in both the United States and Canada, and concerns about lowering audit fees, both fuel and reflect a strong interest in the participation of internal auditors in the external audit. This paper presents the results of a partial least squares analysis of survey data collected from directors of internal audit departments of Canadian organizations. The results indicate that transaction cost variables (uncertainty and transaction-specific investment) are significantly associated with internal audit participation in the external audit.

Saturday, 9:00: Alastair Murdoch, University of Manitoba
"The Impact of Accounting Standard Changes: The Retractable Preferred Shares Case"

The new Canadian accounting standards for financial instruments require that retractable preferred shares be classified as debt. Previous research indicates that firms with such shares will act to mitigate the negative impact of the accounting change on their financial statements. Specifically, firms are likely to:
  • reduce the amount of retractable preferred shares outstanding, and/or
  • reduce the amount of other liabilities or increase the amount of equity outstanding, and/or
  • make accounting changes that increase income and retained earnings. I test these predictions using data on firms required to file information on their preferred shares with Canadian securities commissions.

    Saturday, 11:00: Senyo Tse, University of Texas at Austin
    "The Effect of Limited Liability on the Informativeness of Earnings: Evidence from the Stock and Bond Markets" with Elizabeth Plummer, Southern Methodist University

    Previous empirical research on the informativeness of earnings focuses on stockholders, and has not examined differences in earnings' informativeness to bondholders and stockholders. However, because stockholders are residual claimants and bondholders are fixed claimants, the informativeness of earnings should differ for the two types of investors. Stockholders have limited liability, and as the likelihood of financial distress increases, the association between stock prices and earnings should decline. In contrast, as the likelihood of financial distress increases, bond proceeds are increasingly likely to depend on the firm's financial performance, and bond prices should therefore become more closely associated with earnings information. Consistent with our hypotheses, we find that the association between stock returns and changes in annual earnings declines with financial strength (measured with bond ratings). In contrast, the association between bond returns and changes in annual earnings increases as financial strength declines.
    Prior research documents a significantly stronger association between stock prices and earnings for firms with positive earnings than for loss firms. We replicate this result, but also find that among loss firms, earnings changes are only significantly associated with stock returns for firms with low bond ratings. This suggests that shareholders of financially strong firms view losses as relatively uninformative about future performance. Among loss firms, earnings changes are strongly associated with bond returns for low-rated bonds and some highly-rated bonds, suggesting that bondholders view losses as indicators of increased credit risk.

    Saturday, 2:00: Ron King, Washington University at St. Louis
    "An experimental investigation of retention and rotation requirements" with N. Dopuch and R. Schwartz

    Saturday, 4:00: Dan Simunic, University of British Columbia
    "A Spatial Analysis of Competition in the Market for Audit Services" with Jerry Feltham, UBC, and Derek Chan, Hong Kong University of Science & Technology

    This paper models oligopolistic competition in auditing when audit services are of homogeneous quality, but clients differ in characteristics that affect the cost of service production. Auditing firms, seeking to maximize profits, simultaneously choose multiple specializations and then price their services. Firms are allowed to price discriminate, and audit fees depend upon the specializations of close competitors. In equilibrium, auditing firms choose market niches that differ from their competitors and earn economic rents. Given the homogeneous quality of service assumption, the analysis is likely to be descriptive of competition among the dominant (Big 6) firms. Empirical implications of the analysis for tests of price competition, the effects of mergers among dominant firms, and other issues are also discussed.
    In addition to this theory paper, I hope to be able to report some empirical findings using Australian data I am currently working on.

    1996 CGA - UM Accounting Research Mini-Conference
    Department of Accounting & Finance
    Faculty of Management HomePage