Prabashi Dharmasiri

We document a positive association between accounting comparability and labor-related misconduct for a large sample of U.S. firms. The positive association between accounting comparability and labor-related misconduct is stronger with higher information asymmetry, financial constraints, and incentives to beat earnings forecasts. We identify abnormal labor costs as a channel through which accounting comparability affects labor-related misconduct. Together, our study points to an adverse consequence of accounting comparability in contrast to prior studies that overwhelmingly document benefits.

Managers can choose whether to voluntarily disclose a pending investigation by the U.S. Securities and Exchange Commission (SEC) to their stakeholders. We examine whether and how investors’ reaction to the management disclosure of an SEC investigation before and after a penalty outcome across two experiments are influenced by the level of management’s acceptance of responsibility and different communication modes. We predict and find that investors are more willing to invest when companies voluntarily disclose an ongoing SEC investigation and even more so when management’s public acceptance of responsibility for the punitive outcome is higher. We further predict and find that investors are more willing to invest when they are informed about the voluntary SEC investigation and when the company’s subsequent reporting of the penalty is done through the annual report rather than on social media. However, in the absence of a voluntary disclosure beforehand, investors react more positively to the reporting of the investigation’s outcome when it is done through social media as opposed to the annual report.

While auditors understand the benefits of data analytics (DA) for audit quality, many fail to utilize it to its full potential. Based on the insights gained from our interviews, we conduct an experiment to investigate the joint influence of auditor motives and persuasive messages in enhancing auditors’ reliance on DA. We find that auditors motivated by enjoyment and pleasure (hedonic motives) are more likely to rely on DA when they receive persuasive messages containing less forceful language. In contrast, auditors who aim for personal excellence and purpose (eudaimonic motives) are more likely to rely on DA when they receive persuasive messages containing forceful language. Our study suggests how audit firms could structure messages to auditors about using DA to prime their motives for relying on it.

Health concerns among employees can cause stress and anxiety, which can result in a shift in their priorities. We investigate how factors such as ethnicity‐related immunity, gender, and older age can impact audit quality due to perceived health‐related risks, anxiety, and fear among engagement audit partners. Our research shows that client firms with female and older engagement audit partners tend to have lower quality audits because the perceived health‐related risks and fears lead them to prioritize their family and personal well‐being over work. Our study provides evidence of the negative impact of health‐related risks and fears on engagement audit firms' ability to conduct effective and efficient audits, leading to more discretionary accruals. Contrary to the belief that female and more experienced engagement audit partners are associated with higher quality audits, our findings suggest otherwise. This has implications for investors, regulators and auditors, as it highlights how health‐related issues can influence employee performance and calls for a more empathetic and considerate approach to addressing these issues.

When evaluating the potential financial effects of climate change, investors demand disclosures of the climate‐related risks and opportunities that companies need to manage. We examine how and why management control over climate change performance affects investors' evaluations of such disclosures. In a series of experiments, we find that investors believe that managerial optimism is beneficial and, thus, are more willing to invest when climate‐related disclosures focus on opportunities rather than risks. This effect, however, occurs only when management has high control over the company's future climate change performance. When that control is low, investors believe that managerial realism is beneficial and, thus, are more willing to invest when these disclosures focus on risks rather than opportunities. Our study has implications for companies and standard setters considering the consequences of focusing on either risks or opportunities in climate change reporting and the conditions under which one focus or the other may be beneficial.

The International Auditing and Assurance Standards Board (IAASB) issued for public comment Proposed International Standard on Auditing 570 (Revised) Going Concern. The Australian Auditing and Assurance Standards Board (AUASB) and New Zealand Auditing and Assurance Standards Board (NZAuASB) also called for comments. The Auditing and Assurance Standards Committee of AFAANZ prepared a submission, based on the findings reported in extant research, informing a number of the questions asked by the IAASB. This technical note presents the formal submission made to the IAASB.

We examine how social connections between successive CEOs influence policy changes enacted by incoming CEOs. Using forced turnovers, we document fewer policy changes when incoming CEOs are connected to outgoing CEOs. Our results remain consistent when exposed to tests assessing endogeneity concerns such as omitted variables, selection biases and homophily concerns. We find that the reduction in policy changes is more prominent when social ties are stronger due to greater association between the individuals. Analyses further reveal that such limited policy changes enacted by connected incoming CEOs could deteriorate firm performance, highlighting the potential importance of the findings in the CEO selection process. JEL Classification: D91, J63, M12