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I define moral accounting as the crafting of accountability systems that improve moral performance in a moral way. I also propose that accountants are well-positioned to offer Moral Accounting Engagements (MAEs), which evaluate how a client’s systems fall short of moral accounting’s aspirations and advise them on how they can address any shortcomings. I offer a conceptual framework that leaves controversial moral standards in the hands of those with the philosophical, civic or theological expertise to earn moral authority, but requires accountants to structure those standards to make MAEs a feasible endeavor that ties closely to traditional accounting engagements both conceptually and procedurally. Conceptually, moral accounting views people as stewards acting on behalf of society, just as traditional accounting views managers as stewards acting on behalf of owners. Procedurally, an MAE involves gathering objective data on accountability systems, capturing the performance of entities using double-entry bookkeeping, and evaluating systems and performance in light of existing standards. I also offer a set of Moral Accounting Principles (the MAP) that are moral analogs of longstanding principles in traditional accounting, and that guide the accountant’s evaluation of the client. I close by sketching directions for future research.

This book is an expanded version of "How to be a Good Professor", which was originally written for those who are or want to be professors. This revision is intended for a more general (and especially professional) audience, because almost everyone faces the professor’s challenges: how to use our expertise and insight to provide innovative and justifiable answers to worthwhile questions; how to convey what we know clearly, honestly and persuasively; how to evaluate what others claim to know with a skeptical eye; how to offer and receive criticism diplomatically and constructively; and how to use all of these skills to improve our own organizations and society at large. I hope this book will bring out the good professor in all of us.

This document includes the complete set of free-text responses to our survey on the 2017 Journal of Accounting Research Conference, Registered Reports of Empirical Research. We solicited responses from all authors who have published in six well-regarded accounting journals over the last decade. Respondents provide thoughts on how research quality is affected by authors’ discretion to choose: which measures and analyses to report; whether or not to report a sample or subsample; which observations to exclude from primary analyses; whether to gather additional data after observing results; to change their predictions and/or underlying theory; and to choose not to report or highlight hypotheses. Respondents also provide first-hand accounts of discretionary choices and failed replications, advice to editors and reviewers, and their thoughts on other forms of discretion, motivations for using discretion, and any insights they wish to share not covered by their previous answers.

Management reporting systems are like power tools. They help you improve performance quickly and effectively, but one careless moment can cause irreparable damage and serious injury. For years, my students have been asking permission to send this book of best practices and safety tips to colleagues, friends and family. This revision provides a comprehensive introduction to management reporting systems, complete with links to nearly 100 videos, written to be appropriate for students and practitioners of any background, across all areas where people organize their efforts to improve performance. Examples include business, charities, governmental agencies, education, sports, and family life. Each of its 28 essays can be read separately, making the book well-suited to use as supplemental reading.Drawing extensively from current research and classical philosophy, the book encourages both deep skepticism about performance measures and pragmatic recognition of how useful they can be. Thoughtless adherence to performance measures leads many to decry "bean counters," and emphasize that "Not everything that counts can be counted, and not everything that can be counted counts." Yet something gets counted whenever we need to make critical decisions throughout the workplace, politics and daily life.This book will help readers interpret the performance measures generated by the managerial reporting systems most pervasive in modern organizations, design systems that generate more useful measures, and make better use those measures — even though what gets counted often paints a misleading picture of what counts.

We present 60 experienced credit analysts with financial information for two firms: one that mainly outsources production and one that does not. We find that analysts are better able to identify firm characteristics that make an outsourcer more creditworthy when those characteristics are presented in the same general section of a financial report; either on the face of the financial statements or in the footnotes. Such coordinated presentation reduces the cognitive load necessary for integrating the related information and forming a meaningful mental model of each firm. Our results suggest that if standard setters are going to require more detailed disclosures, coordinated presentation of related decision-useful information in the same section of a firm’s financial report may benefit users, regardless of whether the information is recognized on the face of the financial statements or disclosed in the notes. Supplemental analysis cautions standard setters, however, to consider whether requiring more detailed disclosures provides an incremental benefit over how firm’s disclose information today.

The stated goals of the SEC are to protect investors, maintain orderly markets and facilitate capital formation. These goals can be achieved with very light regulation if, as assumed by traditional economic theory, investors process information costlessly and protect themselves from informational disadvantages, and firms optimally balance the costs and benefits of committing to make their reports reliable. A growing body of research demonstrates that light regulation fails to achieve the SEC’s goals, because investors find information processing costly and fail to protect themselves. After reviewing theory and prior evidence, I discuss new lessons learned from Jiang, Petroni and Wang (2015), who show that PinkSheets® reduced the liquidity of firms with low reporting quality and increased the liquidity of firms with high reporting quality, merely by highlighting the quality of their listed firms’ disclosure. While the Pink Sheets® innovation might have occurred through many causal channels, all of them entail a violation of costless processing and self-protection, and lead to the conclusion that this lightly regulated market did not initially meet the stated goals of the SEC. I conclude by arguing that markets can achieve the SEC’s goals only if they exhibit a particularly strong version of “dynamic” market efficiency, which requires that each individual trade on the path to even incomplete revelation occur at the then-optimal price. Because dynamic efficiency is unlikely, we should stop being surprised to see yet more evidence that lightly-regulated markets fall short on key dimensions. Instead, we should use our well-developed understanding of market inefficiency to guide regulation.

The International Accounting Standards Board (IASB) and The Financial Accounting Standards Board (FASB) recently issued a joint exposure draft on accounting for leases. This exposure draft seeks to shift lease accounting from an “ownership” model to a “right-to-use” model. Under the current ownership model, leases can be reported on balance sheet (finance leases) if certain tests are met, or off balance sheet (operating leases) if those tests are not met. The new model seeks to report all leases on the balance sheet based on the present value of lease obligations without any bright line tests, and no sharp on or off the balance sheet classifications.We are sympathetic to the standard setters concern that the current lease standard is being manipulated improperly by managers resulting in large amount of debt being reported off balance sheet. We provide a discussion of current lease accounting and the proposed exposure draft. We also comment on five key issues covered by the exposure draft: the definition of a lease, the initial measurement and eventual reassessment at fair values, the accounting for lessors, the impact of lease accounting on recognition and income measurement, and classification of lease accounting elements and their impact on accounting ratios.This comment was developed by the Financial Accounting Standards Committee of the American Accounting Association and does not represent an official position of the American Accounting Association.

SYNOPSIS This paper proposes an accounting for revenues as an alternative to the proposals currently being aired by the FASB and IASB. Existing revenue recognition rules are vague, resulting in messy application, so the Boards are seeking a remedy. However, their proposals replace the traditional criteria—revenue is recognized when it is both “realized or realizable” and “earned”—with similarly vague notions that require both the identification of a “performance obligation” and the “satisfaction” of a performance obligation. Our framework aims for the concreteness that yields practical accounting solutions. It has two features. First, revenue is recognized when a customer makes a payment or a firm commitment to pay. Second, revenue recognition and profit recognition are combined, with profit recognition determined on the basis of objective criteria about the resolution of uncertainty under a contract, and then conservatively so. Two alternative approaches are offered: the complete contract method (where profit is recognized only on the termination of a contract) and the profit margin method (where a profit margin is applied to recognized revenues throughout the contract as the contract profit margin becomes clear. The latter requires resolution of uncertainty, so the completed contract method is the default.

Research in behavioral economics suggests that, in addition to their traditional incentive effects, formal control systems can influence psychological motivations. We extend this literature by demonstrating experimentally that formal controls directly influence people's sense of what behaviors are appropriate in the setting (personal norms), and indirectly alter people's tendency to conform to the behavior of those around them (descriptive norms). These effects persist even after the controls are changed, so that the effects of current controls can be strongly influenced by past control strength. Our results support those who are incorporating psychological factors into principal-agent models (such as Fischer and Huddart [2008]), and suggest that those models should be further modified to incorporate correlations between personal norms and conformity to descriptive norms.

SYNOPSIS: The Financial Accounting Standards Board (hereafter, FASB) and the International Accounting Standard Board (hereafter, IASB) issued a joint discussion paper titled Preliminary Views on Financial Statement Presentation. The Boards are seeking comments on whether their proposed model for financial statement presentation would improve the usefulness of the financial statement information for financial decision makers. This paper sets forth the American Accounting Association Financial Accounting Standards Committee (hereafter, the committee) summary comments as well as responses to several of the FASB’s and IASB’s (hereafter, jointly mentioned, the Boards) specific objectives and principles-related questions. Overall, the committee believes that the model has several appealing features, but also has several potential problems. Many of the problems discussed related to potential learning impediments for users to adapt to the new presentation format.

SYNOPSIS: The SEC has proposed a strategic plan that sets out its mission, vision, and values, four strategic goals, a set of desired outcomes associated with each strategic goal, and a list of performance measures for assessing the SEC’s effectiveness in attaining its goals. We affirm the need for vigorous enforcement of securities law and offer some research-based insights and performance indicators. We also acknowledge the importance of disclosure, but propose that the SEC needs to develop a disclosure framework and develop better operational indicators of quality of disclosure. It is important to appreciate the benefits of disclosure as well as its limits and potential dysfunctional consequences. We also discuss the need for an independent accounting standard setter and recommend that the SEC take a greater role in enhancing the independence of the FASB.

Before turning to my three questions, it is worth explicating the power of the “accounting as language” metaphor. People communicate through written natural languages by selecting words from a standard vocabulary, combining them in meaningful ways according to relatively rigid rules of grammar, and then organizing those words into sentences according to relatively flexible rules of syntax and style that allow shades of emphasis and color. People communicate through accounting reports by selecting accounts from a standard vocabulary, combining them in meaningful ways according to the relatively rigid rules of double-entry bookkeeping, and then organizing those words into financial reports according to relatively flexible rules of presentation. The metaphor is by no means perfect. Natural languages are general-purpose tools intended to allow communication about any number of topics, while accounting is a special-purpose tool for communicating about financial state and performance. However, even this difference allows accountants some leverage in applying the metaphor to the following questions.

Jonathan Haidt's Moral Foundations Theory identifies five moral axes that can influence human motivation to take action on vital problems like climate change. The theory focuses on five moral foundations, including compassion, fairness, purity, authority, and ingroup loyalty; these have been found to differ between liberals and conservatives as well as Democrats and Republicans. Here we show, based on the Cornell National Social Survey (USA), that valuations of compassion and fairness were strong, positive predictors of willingness to act on climate change, whereas purity had a non-significant tendency in the positive direction (p = 0.07). Ingroup loyalty and authority were not supported as important predictor variables using model selection ([Formula: see text]). Compassion and fairness were more highly valued by liberals, whereas purity, authority, and in-group loyalty were more highly valued by conservatives. As in previous studies, participants who were younger, more liberal, and reported greater belief in climate change, also showed increased willingness to act on climate change. Our research supports the potential importance of moral foundations as drivers of intentions with respect to climate change action, and suggests that compassion, fairness, and to a lesser extent, purity, are potential moral pathways for personal action on climate change in the USA.

A good Professor achieves a three part mission of research, teaching and service. After elaborating on this mission, I provide some broad strategies for accomplishing it: know when to say no; don’t try to win the measurement game; don’t be a jerk (in the technical sense); “think otherwise”, but judiciously; and be your own adversary. I then spell out specific learning objectives, explain why they matter, and provide advice on how to achieve them. Stated in the language of instructional design, a good Professor will be able to: communicate effectively; craft constructive reviews and effective response memos; put philosophical insights to practical use; motivate students; share in the governance of your institution; and blend work and life so that each enriches the other.

This study describes a “cheap-talk” model in which sellers can credibly convey unverifiable information by choosing whether or not to exaggerate verifiable information. We find that unexaggerated claims can communicate favorable unverifiable information if buyers are not too likely to verify claims, and sellers with better information care more about future prices than sellers with worse information. However, there is always another equilibrium in which sellers exaggerate all verifiable claims. Laboratory tests show that when buyers infrequently verify the sellers' claims, players converge to the equilibria close to the example provided in instructions. When buyers are very likely to verify claims, players fail to converge to any equilibrium. Both of these results are consistent with an evolutionary learning model, but inconsistent with the intuitive criteria of Cho and Kreps (1987). We discuss the implications of our results for both consumer and financial markets.

Management reporting systems are like power tools. They help you improve performance quickly and effectively, but one careless moment can cause irreparable damage and serious injury. For years, my students have been asking permission to send this book of best practices and safety tips to colleagues, friends and family. This revision provides a comprehensive introduction to management reporting systems, complete with links to nearly 100 videos, written to be appropriate for students and practitioners of any background, across all areas where people organize their efforts to improve performance. Examples include business, charities, governmental agencies, education, sports, and family life. Each of its 28 essays can be read separately, making the book well-suited to use as supplemental reading.Drawing extensively from current research and classical philosophy, the book encourages both deep skepticism about performance measures and pragmatic recognition of how useful they can be. Thoughtless adherence to performance measures leads many to decry "bean counters," and emphasize that "Not everything that counts can be counted, and not everything that can be counted counts." Yet something gets counted whenever we need to make critical decisions throughout the workplace, politics and daily life.This book will help readers interpret the performance measures generated by the managerial reporting systems most pervasive in modern organizations, design systems that generate more useful measures, and make better use those measures — even though what gets counted often paints a misleading picture of what counts.

This study examines how order preferencing affects the competitiveness and efficiency of laboratory financial markets. We operationalize preferencing by allowing some dealers to execute a portion of the order flow by matching the most favorable quotes available. Increasing the proportion of order flow that is preferenced can increase bid–ask spreads, reduce the informational efficiency of prices, and benefit dealers at the expense of liquidity traders. Preferencing has none of these effects, however, when two or more dealers are not receiving preferencing orders. Preferencing may significantly degrade market performance if preferencing arrangements affect all, or virtually all, dealers.

The performance of interacting groups is often viewed as a function of the groups' ability to identify and weight their better members' judgments (Einhorn, Hogarth, & Klempner, 1977). Accurate identification of the best group member is facilitated by individuals accurately assessing confidence in their own individual judgments and accurately communicating their confidence during group interaction (Sniezek & Henry, 1989). This paper examines the communication of confidence in interacting groups in two ways: by observing the performance of interacting groups for which confidence is anticipated to be communicated with high accuracy, and by observing the effects of changes in the group interaction setting that vary group members' ability to communicate confidence. This is achieved by examining the performance of a special type of interacting group, a laboratory financial market, that encourages relatively accurate communication of confidence and that can be modified to manipulate the extent to which confidence can be communicated. Results reveal generally high performance of groups which interact in settings that are conducive to communication of confidence, and significant learning from the interaction process by all group members (including the best member). Results also indicate a significant decrease in the performance of groups whose ability to communicate confidence during interaction is reduced.

This paper uses a Pragmatic theory of language (drawn from philosophy and linguistics) to diagnose the causes of excessive and inefficient financial disclosure and propose a regulatory solution. The diagnosis is that existing regulations are effective at encouraging firms to adhere to some, but not all, of the Maxims of Conversation identified by Pragmatics. Regulations encourage firms to disclose any information that might be relevant, but are ineffective in discouraging excessive disclosure of information that is of little relevance given what investors already know. This one-sidedness makes financial disclosures inefficient by limiting the ability for investors to infer that items the firm chooses not to disclose are not particularly important (an inference Pragmatic theorists call “implicature”). The solution is to encourage or require firms to supplement comprehensive disclosures with an “elevated” disclosure that is brief enough to force firms to be selective in choosing what information to include. Regulations can enhance implicature through rules that prohibit firms from elevating disclosures that are less newsworthy than disclosures that are not elevated, thereby enhancing the information conveyed to investors through implicature.

Research in behavioral economics suggests that in addition to their traditional incentive effects, formal control systems can influence psychological motivations. We extend this literature by demonstrating experimentally that formal controls directly influence people’s sense of what behaviors are appropriate in the setting (personal norms), and indirectly alter people’s tendency to conform to the behavior of those around them (descriptive norms). These effects persist even after the controls are changed, so that the effects of current controls can be strongly influenced by past control strength. Our results support those who are incorporating psychological factors into principal-agent models (such as Fischer and Huddart [2008]), and suggest that those models should be further modified to incorporate correlations between personal norms and conformity to descriptive norms.

Advances in virtual world technology pose risks for the safety and welfare of children. Those advances also alter the interpretations of key terms in applicable laws. For example, in the Miller test for obscenity, virtual worlds constitute places, rather than "works," and may even constitute local communities from which standards are drawn. Additionally, technological advances promise to make virtual worlds places of such significant social benefit that regulators must take care to protect them, even as they protect children who engage with them.

Advances in virtual world technology pose risks for the safety and welfare of children. Those advances also alter the interpretations of key terms in applicable laws. For example, in the Miller test for obscenity, virtual worlds constitute places, rather than "works," and may even constitute local communities from which standards are drawn. Additionally, technological advances promise to make virtual worlds places of such significant social benefit that regulators must take care to protect them, even as they protect children who engage with them.

SEC Chairman Arthur Levitt recently called on investors to discourage firms' earnings management by expecting reliable reporting and punishing deceptive reporters (Levitt 1998a, 1999). This paper presents a game-theoretic model in which such punishments can induce managers to develop reputations for reliable reporting. Our first experiment confirms that investors can induce managers to report reliably when one investor visibly commits to a strategy of expecting reliable reporting and punishing reporters who fail to meet that expectation. However, our second experiment shows that reliable reporting is much more difficult to sustain without such a visibly committed investor. These results suggest that managers and investors may have difficulty avoiding the pareto-dominated equilibrium in which managers exploit all of the discretion permitted by GAAP.

In response to recommendations by the AICPA Special Committee on Financial Reporting and the Association for Investment Management and Research, the FASB has recently invited comment regarding the question ?Given [efficient] markets, would any disservice be done to the interests of individual investors by allowing professional investors access to more extensive information?? (AICPA, 1996, p 22). Research in psychology (e.g., Griffin & Tversky, 1992) suggests that less-informed investors may suffer from overconfidence and trade too aggressively given their information. This paper reports two experiments designed to address these issues. In both experiments, security values are determined by the price/book ratios of actual firms, ?more-informed? investors observe three value-relevant financial ratios derived from Value-Line reports, and ?less-informed? investors observe only one of those signals. Experiment 1 provides evidence from a pencil-and-paper task that less-informed investors are overconfident relative to their more-informed counterparts, and that this relative overconfidence is reduced by alerting investors to the extent of their informational disadvantage. Trading behavior follows the same pattern as confidence assessments. Experiment 2 provides evidence from laboratory markets that, even after market prices have stabilized after many rounds of trading, less-informed investors systematically transfer wealth to more-informed investors as a result of biased prices and overly aggressive trading, but that alerting less-informed investors to the extent of their informational disadvantage eliminates these welfare losses. The results of both experiments thus suggest that providing information to only professional investors could harm the welfare of less-informed investors if less-informed investors are not aware of the extent of their informational disadvantage.

Experimental economics studies in auditing typically test for economic forces in multiperson settings and ignore psychological considerations. Behavioral studies in auditing typically test for psychological forces in single-person settings and ignore economic forces. Zimbelman and Waller [1999] (hereafter ZW) manipulate and test for both economic and psychological forces in a multiperson setting. The authors construct an experiment that places auditors in a strategic setting that also subjects them to the psychological force of ambiguity (uncertainty regarding a probability distribution). The auditors respond both to auditees' economic incentives and to ambiguity; auditees also appear to respond to the ambiguity faced by the auditors, although evidence of this effect is weaker. These results show how psychological responses to ambiguity can percolate through a strategic setting, from the auditors (who face ambiguity directly) to the managers (who face the auditors who face ambiguity). The audit setting is a natural one in which to integrate psychological and economic theory. The typical audit environment contains significant ambiguity, and the natural response to such ambiguity (to collect more data than would be predicted by traditional expected-utility theory) has important economic ramifications. The single-person environment of most behavioral studies would fail to capture the complete effects of ambiguity on audit behavior and outcomes, because the likelihood of