fresh research from the hawaii accounting research conference.
by donny c. shimamoto, cpa, citp, cgma
this year’s hawaii accounting research conference provided some insights into the use of emerging technologies in audit and internal control, as well as on people issues like creativity and performance incentives. held every year in january at the university of hawaii at manoa, this conference draws accounting researchers from around the world to share their research findings with a broader academic audience (physical and virtual).
i started attending this conference in 2021 and gained some interesting insights into research being conducted that could shape some of what we do as accounting professionals. this year, i also helped moderate a practitioner panel featuring two past aicpa chairs, tracey golden and kimberly ellison-taylor, and a fellow cpa.citp and tax expert lauren kovar, to share with attendees how they could make their research more relevant to practice.
if you’d like to see the panel discussion, you can watch the recording:
i was only able to attend one day of the conference, but from just the one day, i got some good takeaways from several of the sessions. i’ve outlined these sessions and my key takeaways below. you can also click on any of the links to read the full paper that shares the research study and findings.
can artificial intelligence detect biased client statements to improve the auditor-client inquiry process?
https://scholarspace.manoa.hawaii.edu/handle/10125/76970
by: aaron saiewitz, robyn raschke, pushkin kachroo, shaurya agarwal and jiheng huang
audit inquiry is considered one of the least reliable methods. clients can draft the response to the inquiry to be persuasive to auditors, and past research has shown that auditors are susceptible to these responses and more likely to accept the response. using ai to detect “hidden states” (e.g., aggressive client accounting position) and initiate automated inquiry. four nlp analysis techniques used for the analysis: naïve bayes, decision tree, svm, and liwc. the research found that firms should use multiple algorithms to get the highest level of accuracy, but that overall accuracy was limited to 72%.
augmenting audit and control: a blockchain-based control framework (bbcf)
https://scholarspace.manoa.hawaii.edu/handle/10125/77002
by: nathalie brender, marion gauthier, jean-henry morin and arbër salihi
research has shown that the iia’s three lines of defense model is limited when integrated with proper enterprise risk management (erm) and internal control (ic) frameworks. this paper contends that control weaknesses could potentially be addressed by leveraging the properties of distribution, transparency, and immutability of blockchain technology. they also provided the diagram below that they believe will be the generalized approach followed to incorporate blockchain into enterprise software.
asset control rights and the independent contractor (ic)
https://scholarspace.manoa.hawaii.edu/handle/10125/76932
by: martin holzhacker, harlow loch, jason miller and alex scott
with so many people shifting to the “solopreneur” or “gig worker” employment model, should accounting firms or finance departments be hiring these independent contractors? this research highlighted some of the risks involved with this type of model, including–in particular–opportunism. risks that organizations can face include: stronger incentive for opportunistic behavior (putting drivers’ needs ahead of that of business or society); can’t use controls typically used for employees like hierarchical control; differing performance measures or incentive pay structures; and not having control over an ic’s assets so you can’t necessarily enforce regulatory or policy compliance. the paper also provided some insights into some mitigation approaches and what may or may not.
are constraints good for creativity? the effect of decision rights and performance-dependent incentives on creativity
https://scholarspace.manoa.hawaii.edu/handle/10125/76863
by: alisa brink, erin masters, bernhard reichert and j. matthew sarji
we commonly hear restrictions on autonomy negatively affect creativity. this research showed that having decision rights over selecting the most creative output leads employees with decision rights to engage in a satisficing process and settle for lower creativity output. this satisficing process led to differences in the amount of high-creativity output (top 25% of creativity) with the high-creativity output being highest when employees do not have decision rights and receive performance-dependent compensation—but not for fixed compensation. my key takeaway from this session: be sure to incentivize compensation when you are expecting a person to be creative in their job role, but you also need to limit their decision rights on their own creativity.
the impact of input information in the performance report on employee performance
https://scholarspace.manoa.hawaii.edu/handle/10125/76868
by: todd thornock and tyler thomas
this research looked at how output expectations provided to employees impacted employees’ performance outcomes on a simple versus complex task. included in their consideration were the monitoring controls whether managers could favorably adjust the performance target, which could impact the receiving of incentive compensation. with simple tasks (direct correlation and predictive capability between inputs and outputs), the research found that output information matter more to improve performance. with complex tasks (input weakly corrected to output, i.e. more creative or problem-solving work), the research found that input information actually mattered more because people tended to think that their manager would look for favorably on the amount of effort that they put into the task rather than the actual outcomes achieved.
my key takeaway from this: as the profession debates whether we should continue requiring timesheets (inputs), this research would indicate that timesheets should not be kept for more simpler or mundane tasks (e.g. do audit substantive testing or prepare tax return), but potentially should be for more complex tasks (e.g. assessment of risk or develop tax strategy).
to give up or not to give up: the effect of contract frame and target difficulty on effort provision and performance
https://scholarspace.manoa.hawaii.edu/handle/10125/76896
by: rachel martin, tyler thomas and dimitri yatsenko
this research found that even though individuals have a preference for bonus contracts, they actually put more effort in when there was a penalty contract due to loss aversion. they also found that whether the performance target was high or low also played a factor. with a low target, the bonus contract actually led to higher performance since the bonus was achievable. however, with a high target, the penalty contract led to significantly higher performance than the bonus contract. the penalty contracts also tended to lead more to repetitive “giving up’ behaviors. bottom line: don’t use penalty contracts with low targets.
this paper raised in my mind the question of whether we should have penalty clauses in our compensation plans rather than incentive pay. there was additional discussion around whether this really depended on the person’s personality and whether higher loss aversion personalities would choose penalty contracts knowing that they would be more motivated to avoid the penalties.
relevance of accounting research
as you can see there is starting to be a stronger correlation of accounting research to issues we are facing in practice. i am part of an american accounting association (aaa, association for accounting professors) task force looking into ways to better bridge research and practice. tracey golden also shared that she sits on the board of aacsb (association to advance collegiate schools of business, the association that awards accreditation to schools of businesses), who is also modifying the accreditation standards to include a measure of the relevance of the school’s research to practice. so, there are major initiatives underway to try to bridge the gap between academia and practice, but there is still a ways to go.