Recent accounting scandals have resulted in regulatory initiatives designed to strengthen audit committee oversight of corporate financial reporting and have led to a concern that U.S. GAAP has become too rules-based. We examine issues related to these initiatives using two experiments. CFOs in our experiments exhibit more agreement and are less likely to report aggressively under a less precise (more principles-based) standard than under a more precise (more rules-based) standard. Our results also indicate that CFOs applying a more precise standard are less likely to report aggressively in the presence of a strong audit committee than a weak audit committee. We find no effect of audit committee strength when the standard is less precise. Finally, we find support for a three-path mediating model examining mechanisms driving the effect of standard precision on aggressive reporting decisions. These results should be of interest to U.S. policymakers as they continue to contemplate a shift to more principles-based accounting standards (e.g., IFRS).

Due to recent technological advancements such as online workpapers and email, audit firms have alternative methods of workpaper review that they did not have in the past. While audit workpaper preparers typically know they will be reviewed, and know the form their review will take, prior research has focused on comparing the judgments of auditors who expect to be reviewed with auditors who expect to remain anonymous. This study examines the effects on preparers of using two different methods of review: face-to-face and electronic review. The study also compares both review groups to a no-review control group. Consistent with the Heuristic-Systematic Model, we find that the method of review affects preparer effectiveness and efficiency. Specifically, preparers anticipating a face-to-face review are more concerned with audit effectiveness, produce higher quality judgments, are less efficient at their task, are less likely to be influenced by prior year workpapers, and feel more accountable than preparers in both the electronic review and no-review conditions. Interestingly, electronic review preparers generally do not differ from the no-review group. These results suggest that how a review will be conducted, and not merely the expectation that a review will occur, affects the decision-maker's judgments and perceptions.

Contrast analysis has become prevalent in experimental accounting research since Buckless and Ravenscroft (1990) introduced it to the accounting literature over 25 years ago. Since its initial introduction, the scope of contrast testing has expanded, yet guidance as to the most appropriate methods of specifying, conducting, interpreting, and exhibiting these tests has not. We survey the use of contrast analysis in the recent literature and propose a three-part testing approach that provides a more comprehensive picture of contrast results. Our approach considers three pieces of complementary evidence: the visual evaluation of fit, traditional significance testing, and quantitative evaluation of the contrast variance residual. Our measure of the contrast variance residual, q2, is proposed for the first time in this work. After proposing our approach, we walk through six common contrast testing scenarios where current practices may fall short and our approach may guide researchers. We extend Buckless and Ravenscroft (1990) and contribute to the accounting research methods literature by documenting current contrast analysis practices that result in elevated Type I error and by proposing a potential solution to mitigate these concerns.

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Although the financial statements of an organization are considered a product of management, prior research suggests that a company's financial statements may be affected by the negotiation strategy employed by the auditor when resolving audit differences with management. However, little subsequent research has discussed the potential strategies that auditors may employ during the negotiation process. Our study extends the literature by investigating, in a post-SarbanesOxley environment, whether auditors will employ a reciprocity-based strategy for the resolution of audit differences and what client characteristics (client management's negotiating style and client retention risk) will increase the extent to which it is utilized. Further, we explore the potential effect of a reciprocity-based strategy on the quality of the financial statements. Such a strategy involves bringing inconsequential items to management and subsequently waiving these items in an effort to encourage management to be more cooperative in the posting of significant income-decreasing adjustments. The results of experiment 1 indicate that client management's negotiating style and retention risk have an interactive effect on auditors' use of a reciprocity-based strategy. Specifically, auditors are more likely to utilize a reciprocity-based strategy when management's negotiating style is competitive and client retention risk is high. Experiment 2 findings suggest that the auditor's use of reciprocity during negotiation can actually result in more conservative financial statements by helping the auditor manage perceived client pressures to waive or reduce proposed adjustments.