Hsiao-Tang Hsu

The economic literature documents that the investment rate in intangible assets, including intellectual property (IP), has far outpaced that of tangible assets for several decades. In this context, our research delves into the impact of self-created intangible assets on the auditor’s risk assessment. We present compelling evidence that, on average, research and development (R&D) knowledge capital is associated with higher audit fees. Using patent-based metrics as the proxies for innovation outcomes, we reveal that the number of patents (quantity), patent citations (quality-adjusted quantity), and patent technology classes (scope) all positively correlate with audit fees. Additional analyses show that innovation efficiency is negatively associated with audit fees. Furthermore, firms with a higher intensity of knowledge capital are more likely to receive going concern opinions than those with significant innovation outcomes. These findings provide valuable insights into the complex relationship between intangible assets and audit risk assessment.

We examine financial reporting and firm operations, focusing specifically on the roles of ‘enterprise risk management’ (ERM), within which a holistic approach is taken to the conceptualization and management of all types of risk. We measure ERM implementation based on information obtained from 2004–2014 financial reports on 648 firms. We find that ERM implementation is associated with higher reporting quality and reduced volatility in future firm performance in terms of both operating cash flows and stock returns. Our difference-in-differences analyses indicate that these associations were strengthened by the introduction of the Securities and Exchange Commission (SEC) final rule in 2010, requiring increased and improved disclosure related to risk oversight. Our findings, which we attribute to the incremental effects of ERM and enhanced risk disclosure over time, point to the substantial advantages of ERM and the importance of related disclosure, which should prove to be of interest to firms as well as policymakers.

Purpose: The choice of accounting methods is critical in measuring the performance and sustainability of a public defined benefit pension (DBP) plan, and such measurement has an impact on the effectiveness of the entire pension system. Prior literature rarely discusses the choice and rationale of the accounting assumptions for public DBP plans. This study fills the gap by investigating whether crucial plan characteristics, including operational performance, financial health, sponsor fiscal stress, and audit quality, are associated with the accounting assumptions of public DBP plans.Design/methodology/approach: The sample includes 1,170 plan-years from the intersection of the Center for Retirement Research and public DBPs' annual financial reports for the years 2001–2013. This study develops regression models to examine the relationship between the characteristics of public DBP practices and DBP accounting choices.Findings: The empirical results show that the public DBPs that have better investment performance, higher funding status, less fiscal stress, and that are audited by Big 4 accounting firms are more likely to adopt conservative accounting choices.Originality/value: The study documents the impact of crucial pension plan characteristics on public DBP managers' accounting choices, which were not extensively discussed in pension literature. The findings help us understand the rationale for employing different accounting treatments in the context of public pension fund practices. In addition, the study sheds light on policy implications for the future reform of public pension regulations.

Economic literature documents that the rate of investment in intangibles has exceeded tangible assets in the U.S. private sector since the mid-19 |

Existing research on cost stickiness focuses primarily on for-profit companies. This study investigates cost behavior in the public sector, a new setting that deserves more research attention. Using unique data from public schools in Taiwan, we find that operating expenditures of public schools are sticky. Moreover, the stickiness is more prominent for schools whose principals facing higher enrollment pressure. These results support the public choice theory, suggesting that bureaucratic power may serve as a key driver leading to a sticky cost behavior for governmental organizations. The government auditors and congressional representatives monitoring governmental budgets should thus notice that bureaucrats might keep the level of expenditures just for their self-interests when demand declines, a manifestation of distortion in allocation of social resources.

We examine the market reaction to the discussions and deliberations during the period 1998 to 2015 surrounding the new revenue recognition standard issued simultaneously by the FASB and IASB. We find that market reactions to events leading to the joint standard differ for US GAAP and IFRS firms. The reaction is a net negative reaction for US GAAP reporters but a net positive reaction for IFRS reporters. US GAAP (IFRS) firms in high litigation industries experience negative (less positive) market reactions to those in low risk industries. In certain high-impact industries in the U.S. including medical equipment and telecommunications, the market reaction is positive suggesting benefits in these industries. Further, the results for the most visible and significant events are consistent with those based on the full set of events. The evidence suggests that the new revenue recognition standard imposes net costs to the U.S. firms, except in those industries expected to benefit the most, while it provides net benefits to IFRS reporters.

Accounting regulatory changes that affect the information technology (IT) infrastructure of firms have prompted Chief Information Officers (CIOs) to take the lead in aligning IT changes with new reporting requirements. This study investigates the associations between the mandatory adoption of International Financial Reporting Standards (IFRS), one significant global accounting reform, and CIO compensation. We show a significant increase in CIO compensation in the post-IFRS period, which is higher in non-IT firms than in IT firms. Moreover, pay is at a premium for CIOs equipped with business education. We discuss the implications of our research and offer suggestions for future research.

This paper investigates the ability of long-lived asset impairments to predict future operating cash flows under US GAAP and IFRS. We provide evidence that tota