Higgs, Julia

The United States established the Environmental Protection Agency (EPA) to
monitor and enforce compliance with environmental pollution standards through various
programs and policies. One such policy, the Audit Policy, allows companies to
voluntarily self-report violations to the Agency in exchange for elimination of certain
penalties. Despite the policy, firms still incur large environmental penalties, thus
indicating the need for better understanding of the policy. A necessary but not sufficient
condition for penalty relief under the Audit Policy requires discovery of violations by an
environmental audit or a compliance management system. This research explores the
option of discovery by a compliance management system and examines the motivation of
managers to invest in an environmental management system (EMS).
The theory of reasoned action (TRA) argues that attitude and subjective norms
precede intentions. I use this theory to investigate what factors cause a manager to invest in an environmental management system (EMS). Additionally, I examine whether
environmental attitude, tolerance for ambiguity and willful blindness are antecedents to
attitude towards an EMS. In this study, I develop and test a scale of the willful blindness
construct and measure its impact on managerial decision-making. The willful blindness
construct development produced a one-item measure. My results support all hypotheses
except for the predicted link between tolerance for ambiguity and attitude.

The study examines the potential threat to an auditor’s independence in fact which
may result from the extraordinarily favorable personal reputation (superstar status) of an
audit client’s CEO This potential threat to an auditors’ independence is the result of a
halo effect bias which can distort an individual’s judgment and behavior Accounting
firms use a business risk audit approach which involves conducting a strategic risk
assessment which assesses the overall threats to the business model of an audit client
Prior research has demonstrated that the strategic risk assessment can bias the judgment
of auditors pertaining to financial account level risk assessments For example, the Bernie
Madoff Ponzi scheme demonstrated how an extraordinarily well respected individual
with superstar status can distort the judgment of knowledgeable and normally skeptical
individuals An experiment was conducted to examine the potential threat of a superstar
CEO on an auditor’s independence as demonstrated by the ability to distort the judgment of the auditor during the performance of the strategic risk assessment In addition, the
experiment was designed to examine whether the halo cognitive bias can lessen the
impact that an auditor’s professional skepticism has on his or her judgment and behavior
during the audit of a client’s financial statement Unlike other studies which have sought
only to demonstrate that a cognitive bias exist which impairs auditor judgment; the study
also examined whether the influence of a halo effect bias can be mitigated by the formal
rating of audit evidence in a similar manner that was used by Embu and Finley (1977) to
successfully mitigate a framing effect
The experiment did not support the main hypothesis of the study that auditors
assess the strategic risk at a lower risk level for firms that employ a superstar CEO than
for those whom employ a non-superstar CEO This result may primarily be due to the
inability of the scenario used in the experiment to sufficiently differentiate the
characteristics of the superstar and non-superstar CEO Without establishing that the
participants’ judgment was being distorted by a superstar CEO; the other hypotheses
which involved testing a debiasing method to mitigate the halo effect caused by a
superstar CEO and investigating whether a halo effect reduces the impact that auditors’
trait skepticism level has on their judgment could not be properly tested

A significant challenge faced by large auditing firms is offering consistent quality
across the global network. Unfortunately, variation in judgments and decision-making,
resulting from cultural differences, can undermine the provision of a uniform level of
audit quality for these international firms. Previous research has determined that national
culture influences an auditors’ professional judgments and decisions. Relying on Social
Identity Theory, I explore whether inducing one’s organizational identification can both
enhance auditor judgment and mitigate any deleterious impact that culture may have on
the provision of a uniform level of audit quality. I also examine current cultural variations
in auditor judgment in order to ensure that the results of earlier studies still typify the
international auditing environment. National culture is assessed using two dimensions
(individualism/collectivism, power distance) included in Hofstede’s 1980 cultural values framework. Participants from the United States are used to represent an
individualistic/low power distance culture while individuals from India are used to
represent a collectivistic/high power distance culture. Firms need mechanisms to elicit
desired behaviors that may not be consistent with cultural tendencies in order to provide a
uniform level of audit quality.
Contrary to expectations, no significant differences are identified between the
judgments of auditors from India and The United States. The results, however, do provide
evidence that enhancing one’s organizational identification can impact certain
professional judgments during the audit process. An association between national culture
and auditor attitudes pertaining to client trust is also found. The implications of these
findings for the professional auditing environment and future academic research are
discussed.

Taxpayers who hire tax professionals to assist with tax matters have a choice as to which type of tax professional to hire. This study looks at the choice between hiring a tax accountant or a tax attorney. Stephenson (2010) identifies four constructs that explain a taxpayer’s motivation to hire a tax professional—legal compliance, time savings, money savings, and a protection from/avoidance of the Internal Revenue Service. A taxpayer may be motivated by one or more of these demand constructs. Further, the context of the advice—whether given in a planning or compliance setting—may influence the choice of a specific type of practitioner. Taxpayers also perceive certain professional features of the practitioner as being associated with either an accountant or an attorney. In a 2 x 1 between subjects research design, I investigate these issues by exploring how the perceived characteristics of the accounting and legal professions and the tax context differentially influence the demand for one of these professionals. I hypothesize that taxpayers who demand a tax professional because of legal compliance or time savings are more likely to hire an accountant. Taxpayers who demand the services of a tax professional because of money savings or a protection from/avoidance of the Internal Revenue Service are more likely to hire an attorney. Additionally, I hypothesize that taxpayers in a planning context are more likely to hire an attorney while taxpayers in a compliance setting are more likely to hire an accountant. In a hierarchal regression, the variable for accuracy was significant in a simple regression of the four Stephenson constructs. In a second tier of the regression, accuracy was again significant as were certain covariates. In the final tier of the regression, no independent variable was significant but certain covariates were significant including client advocacy which was highly significant. The results do demonstrate that taxpayers perceive professional differences between a tax accountant and a tax attorney. Many of the results and the rationales underlying the hypotheses seem to be in the right direction as far as showing the expected demand for a specific tax professional.

I show that auditors experience cognitive dissonance when they fail to take appropriate professionally skeptical (hereafter PS) action in line with high PS judgment I specifically show that cognitive dissonance leads auditors to revise their attitudes on low ranking audit actions upward and lower their risk assessments, consequently, lower overall professional skepticism I also find that auditor cognitive dissonance leads to exaggerated ex-post auditor self-assessments professional skepticism Professional skepticism is fundamental to performing an audit according to auditing standards and critical to audit quality Extant research that investigates treatments to enhance professional skepticism predominantly treats both skeptical judgment and skeptical action as analogous outcomes of professional skepticism If, however, there is a breakdown between PS judgment and PS action, the overall benefits of these treatments will be trivial I show that cognitive dissonance due to the incongruence between PS judgments and PS actions leads to an unforeseeable corollary of lower overall professional skepticism I also demonstrate a specific mechanism of how auditor incentives lead to lower professional skepticism, hence, lower audit quality Both researchers and practitioners can benefit from this study by better understating the intricacies in the critical link between PS judgment and action Additionally, I provide an empirical investigation of the components in Nelson’s (2009) model of professional skepticism and extend the model to reflect the intricacies between PS judgment and PS action I test my hypotheses via a three-group research design with attitude change as a proxy measure of cognitive dissonance

The Big 4 global networks (Deloitte, Ernst & Young [E&Y], KPMG, and
PricewaterhouseCoopers [PwC]) market themselves as providers of worldwide seamless services and consistent audit quality through their members. Under the current environment in which these auditors operate, there are three types of global network members: inspected non-U.S. affiliates (inspected affiliates, hereafter), non-inspected non-U.S. affiliates (non-inspected affiliates, hereafter), and inspected U.S. offices (U.S. offices, hereafter). The recent suspension of the China-based Big 4 affiliates from auditing U.S.-listed companies calls into question whether these global networks can deliver the same level of audit quality across all their members and whether those located in jurisdictions denying access to the Public Company Accounting Oversight Board (PCAOB or Board, hereafter) to conduct inspections may benefit from such inspections. This study examines the effect of being an affiliate and the effect of PCAOB inspections on perceived audit quality. I use earnings response coefficients (ERCs) as a proxy for perceived audit quality.

In December 2009, the Securities Exchange Commission (SEC) approved enhanced proxy disclosure rules requiring companies to disclose the board’s leadership
structure and the board’s role in risk oversight. Apart from general business risks, boards
are increasingly interested in Information Technology (IT) risks as it affects all aspects of
the organization (PricewaterhouseCoopers [PwC], 2013). Since the effectiveness of IT
risk management depends on senior managers’ actions, this dissertation attempts to
answer the question of whether the maturity of IT risk management practices (the extent
to which management performs particular activities to identify, assess, monitor and
respond to IT-related risks) in organizations depends on the Chief Information Office
(CIO) reporting structure and the board’s leadership structure.

In response to the release of one of its Public Company Accounting Oversight Board
(PCAOB or Board) inspection reports, Deloitte notes that “[p]rofessional judgments of
reasonable and highly competent people may differ as to the nature and extent of
necessary auditing procedures, conclusions reached and required documentation”
(PCAOB, 2008, 30). Other responses to PCAOB findings echo this sentiment.
Stakeholders need to understand causes of differences between experts’ professional
judgments to effectively utilize PCAOB inspection findings and firms’ responses to those
findings. This study uses Social Identity Theory to explore whether role identity as an
audit partner, internal reviewer, or PCAOB inspector, influences an expert’s judgments in
an ambiguous decision environment. I find that professional judgments do not differ
based on professional identity. This study also examines whether the presence or absence
of outcome knowledge explains judgment differences among auditing experts. Consistent
with prior research, e.g. Peecher & Piercey, 2008, outcome knowledge does affect experts’ professional judgment. I also find that experts’ level of organizational identification and membership esteem impacts professional judgment.

This paper brings together the auditor quality, asset reliability and firm valuation literatures by examining the role of auditor quality in equity valuation. The study broadly follows the Richardson et al. (2005) categorization of the reliability of accounting accruals of balance sheet components and conjectures that the role of auditor quality in equity valuation is more pronounced when asset reliability is not high. Auditor quality is measured using reputation, industry specialist and tenure metrics. The underlying assumption is that auditor quality enhances the market's perception of firm value; as such, auditor quality may mitigate the cost of security mispricing documented by Richardson et al. (2005) for low or medium reliability accruals. The results of the study provide some support that high quality auditors contribute to the valuation of equity for assets. It is less clear as to whether the value is more pronounced for low or medium reliability assets.