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Data security is a critical concern for organizations. In a rush to protect data, some IT managers overlook the important first step of data classification and instead focus on implementing the strictest controls on all data to reduce risk. To investigate organizational processes surrounding data classification, we conduct interviews with 27 CISOs in 23 organizations. We develop a model that identifies the common themes of data classification and their interrelationships. The most common driver for data classification is compliance with data privacy regulations and security standards. Collaboration and employee education are essential to the process. Increases in employee awareness of data security risk and improvements in data hygiene are outcomes. Challenges to data classification include the increase in IT landscape complexity, maintenance of an accurate data inventory, immaturity of automated tools, limited resources, and user compliance. Our model provides insights for practitioners and identifies areas of interest for researchers.

Based on a real-world, public company, $30 million embezzlement and financial statement fraud, this case helps students to recognize red flags, analyze a situation using the fraud diamond, perform research and reflect on their own work experiences to support a belief, and conduct financial statement analysis. Its variety of activities are suitable for both undergraduate and graduate accounting students, and in-class and out-of-class learning. Because it is based on an actual fraud, it includes an epilogue with links to news stories and court documents, which improves student engagement with the material.

Materiality is a critical and challenging auditing concept. To help auditors improve their materiality judgments, the authors provide examples from Judaism, primarily due to its longevity and the richness and variety of its stories. The authors show how Judaism interprets and applies materiality in many contexts. For each, the authors provide guidance on how auditors might apply these lessons to improve their materiality judgments. The authors examine five areas where Judaic examples can inform modern auditing including: (1) considering both quantitative and qualitative measures; (2) recognizing that small quantitative changes can lead to material qualitative effects; (3) understanding that ignoring small issues can become a slippery slope; (4) considering the importance of financial statement users’ needs in developing materiality criteria; and (5) prioritizing substance over form. In all examples, context is a critical factor to consider when applying materiality. These results should be of interest to auditors, financial statement users and others.

Purpose This study aims to examine how public accounting firms can use developmental mentoring to increase knowledge sharing (KS) among employees directly and indirectly through affective organizational commitment. Design/methodology/approach This study uses a survey of public accounting professionals to elicit participants’ demographics and their perceptions of KS, mentoring relationships and organizational commitment in their workplace. Findings The findings support that two categories of challenges found in developmental mentoring, demonstrating dedication and resilience and career goal and risk orientation, are directly associated with increased KS and they, along with a third, measuring up to mentor’s standards, indirectly influence KS through their positive effect on organizational commitment. Applying social exchange theory, these challenges contribute to a reciprocal relationship between the protégé and mentor, which builds the relationship between the protégé and organization. Practical implications This study provides information about developmental mentoring that human resource professionals and managers in public accounting firms can use to address two persistent challenges facing them: increasing employees’ organizational commitment and encouraging employees to share their knowledge with others at work. Originality/value This study examines the concept of developmental mentoring, adopting three categories of mentoring challenges and applying them in the context of public accounting to examine their effect on KS.

Purpose The purpose of this paper is to explore how non-professional investors (NPIs) with varying levels of financial sophistication interpret and perceive corporate disclosures and management credibility, specifically risk factors, when those disclosures are presented in readable and less-readable formats. Design/methodology/approach The paper uses an online experiment to test hypotheses related to the effects of financial sophistication (measured) and readability (manipulated) on NPIs’ equity valuations and perceptions of management credibility (competence and trustworthiness). Findings Increased readability appears to counteract less-sophisticated NPIs’ conservatism in equity valuations, such that they are not statistically significantly different from more-sophisticated NPIs’ equity valuations. Further, less-sophisticated NPIs judge management as less competent when disclosures are less readable, while more-sophisticated NPIs judge management as more competent when disclosures are less readable. Research limitations/implications The paper has important implications for the SEC’s regulations related to plain English requirements for risk factor and other corporate disclosures. Financial sophistication varies among NPIs, and readability appears to influence these individuals in different ways. Practical implications The SEC’s Concept Release (April 13, 2016) acknowledges the need to update and improve risk factor disclosure regulations. This study provides evidence that contributes to those decisions. Originality/value The paper extends the research on processing fluency, by examining readability of disclosures with a consistent tone (negative). The NPIs surveyed are directly representative of the population of interest for risk factor disclosure regulations.

The SEC whistleblower bounty program's effectiveness in increasing external reports of illegal acts suggests that employers might increase internal whistleblowing by offering monetary awards. We propose and test a model that explores how monetary incentives affect trust, and ultimately whistleblowing intent, in both high and low retaliation threat environments. Results of a 2 (high/low retaliation threat) × 2 (money/no money) experimental study of 295 U.S. adults confirm that low (high) retaliation threat positively (negatively) relates to whistleblowing intent, mediated by trust. Monetary incentives moderate the relationship between retaliation threat and trust such that when retaliation threat is low, money increases organizational trust, leading to higher whistleblowing intent, but when retaliation threat is high, monetary incentives do not significantly influence trust. We also find that in a high retaliation threat environment with monetary incentives present, intrinsically motivated individuals report significantly lower levels of trust compared to trust levels reported by extrinsically motivated individuals. Our findings help managers understand how and when monetary incentives may be effective in increasing internal whistleblowing. Data Availability: Data are available from the first author.

Despite formal ethics education and ethics-related continuing professional education (CPE) requirements, professional accountants continue to play a central role in enabling corporations to make unethical business decisions and take unethical business actions. Several jurisdictions in the United States require ethics education for licensure, but often the focus is on memorizing rules and regulations, rather than on providing tools to improve the moral practice of professionals and to help them resolve ethical dilemmas. The authors analyzed recent state Certified Public Accountant (CPA) society course offerings and found much more emphasis on memorization than on ethical reasoning to satisfy State CPA CPE requirements. To improve accountants’ ethical awareness and behavior, CPE providers should stress ethical reasoning rather than merely memorizing rules. Such changes will make future and present accountants and auditors more ethically aware, and thus more likely to improve their ethical decision-making. Nonetheless, the authors suggest that effective ethics education and training should start in the classroom with help from departmental advisory councils. Ethics courses offered in accounting programs as well as those offered by CPE providers can leverage the experience of members of advisory councils to create programs that resonate with professionals and foster lifelong ethical awareness and ethical reasoning skills.

Public accounting firms can build integrity within their organizations through early detection of fraud. One way to reduce and detect fraud is to encourage whistleblowing as a prosocial behavior. We explore the impact of mentoring on intention to report fraud. A survey with 120 responses from the US public accountants suggests that quality mentoring relationships, a common feature in the profession, and caring ethical climate positively relate to internal reporting of fraud. Two intermediate variables, trust and affective commitment, mediate these effects. Mentor-relationship quality also increases perceptions of caring ethical climate. The study contributes to two bodies of research by (1) finding extended benefits from mentoring, beyond those typically discussed in academic literature; and (2) identifying a previously unexplored firm intervention capable of positively influencing prosocial behavior and combating fraud.

An introduction is presented to a series of articles published within the issue on topics including accounting information systems and ethics, use of performance measurement systems, and ethical implications of data analytic-driven active monitoring systems on employees' perceptions of morale and views of the organization.

The rapid evolution of technology and the increasingly integrated nature of Accounting Information Systems (AIS) in business provide opportunities for those who interact with these systems to act unethically. Accountants, as the managers of accounting information systems and gatekeepers of assets, records, and reporting, have a responsibility to understand and address ethical dilemmas related to these responsibilities in their organizations. A summary of AIS and ethics research calls attention to gaps in the literature and provides directions for future research. The ETHOs framework, which categorizes factors as environmental, technological, human, and organizational, provides a model for researchers to examine ethical issues related to the AIS functions of recordkeeping, reporting, and control.

This project introduces students to database design and implementation using Access 2013. It is appropriate for use in accounting or management information systems undergraduate or graduate courses to satisfy learning objectives associated with developing database design and implementation skills, and understanding and implementing application controls. To complete the project, students should have an understanding of business models, entity integrity and referential integrity rules, and the concept of cardinalities. The project can be completed in or out of class and takes about 1–2 hours. This resource includes a tutorial and sample final assessment, with solutions. Upon completion, students will be able to create tables, forms, queries, and reports and understand and enable data input validation controls within Access 2013.

Occupational fraud frequently involves the direct or indirect participation of professional accountants (PA). To reduce fraud, companies often focus on the incentive/pressure and opportunity legs of the fraud triangle, perhaps believing that rationalization is beyond their control. We argue that rationalization reduction is necessary to minimize occupational fraud. We propose that educators and PA consider incorporating fences as controls to reduce rationalization. Because they focus on compliance and risk avoidance and are non-negotiable, fences appeal to accountant’s Myers Briggs personalities and conventional level of moral development. Educators can teach students about the fences used in practice, and explain how they help new professionals resist pressures and temptations. By adding fences to existing professional guidance, accountants can reduce the likelihood that they will be a party to fraud.

Do you know what choices you would make if faced with an ethical dilemma? This fact-based case includes situations and issues that a real citizen considered when faced with the knowledge that his employer may have been overbilling the state of North Carolina for health care. Professionals, especially those in accounting and finance positions, are likely to face serious dilemmas in the course of their careers. These situations may require them to choose between honoring a confidentiality clause in an employment contract and acting according to ethical and professional values. This case provides facts gathered from an actual case in which an individual faced this particular challenge. By working through the case, students should develop an appreciation of the pressures and personal ethical challenges they are likely to face in the workplace. By engaging in discussion and role-play, students will be more likely to recognize these issues when they occur, and will have already developed critical thinking skills to help them develop a plan of action.

This paper investigates auditors' likelihood to report observations of colleagues' unethical behavior. We consider whether two characteristics that are particularly relevant to the audit environment, prior organizational response and power distance, affect willingness to report. Data collected from 106 senior-level auditors suggest auditors are more likely to report on their peers than on their superiors, but they are more likely to report superiors when prior organizational response is strong than when it is weak. Additionally, men appear to be relatively less sensitive to variations in power distance or prior organization response than women. Moral intensity of the case is significantly related to reporting likelihood, and power distance moderates this effect such that those who perceive this scenario to be of lower moral intensity are much more influenced by power distance than are those who perceive it to be of high moral intensity. These results contribute to the existing literature on accounting ethics, as well as inform public accounting governance policies.

In the spirit that a picture is worth a thousand words, the Pathways Commission Vision’s “perception” of accounting is a simplistic caricature of a practice epitomized by bookkeeping and governed by a “black letter” tradition whereby hard-and-fast rules exist for distilling the vast number of data business generates into a meaningful narrative about the financial state and performance of a firm. The “Reality” Vision is a rather heroic self-perception the profession has for the role it will play in producing a prosperous society. The problematic ambiguity with the “Reality” obviously revolves around the concept of “prosperous society” and what implications different notions of prosperous have for accounting’s role in society, given accounting’s (and accountants’) limitations. We propose a vision for a prosperous society based on the 17 UN goals, specifically focusing on the two which relate to income distribution and sustainability. We consider how accounting can play a role in helping achieve this view of a prosperous society.

SYNOPSIS eXtensible Business Reporting Language (XBRL) has the potential to improve the transparency of financial reports; however, its complexity creates the risk of introducing errors that are a threat to its usefulness. XBRL is a complex technological change in financial reporting of nearly unprecedented scope. Prior to June 2009, the date of the first mandated XBRL filings, the SEC made available a Voluntary Filing Program (VFP) to assist in addressing the difficulties of creating XBRL documents. This study examines errors in the VFP filings, and investigates whether stakeholders used their experience to improve the XBRL technology and processes. Findings indicate a reduction in errors over time, suggesting that the VFP for XBRL was successful. These results support the use of a VFP to identify and solve unanticipated issues and evaluate the feasibility of implementing large-scale technological changes in financial reporting and perhaps comprehensive changes in accounting standards such as the implementation of International Financial Reporting Standards.

SUMMARY: Recently, the Securities and Exchange Commission (“SEC” or “Commission”) proposed rules and forms to implement Section 21F of the Securities Exchange Act of 1934 (“Exchange Act”), entitled Securities Whistleblower Incentives and Protection, and sought comment thereon. The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010 (“Dodd-Frank”), established a whistleblower program that requires the Commission to pay an award, under regulations prescribed by the Commission and subject to certain limitations, to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action. Dodd-Frank also prohibits retaliation by employers against individuals that provide the Commission with information about potential securities violations. Comments were requested by the Commission and could be submitted on or before December 17, 2010. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below to the Commission on the Proposed Rules for Implementing the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934.

In this paper, we examine whether the readability of different types of corporate risk disclosures influences the risk judgments of nonprofessional investors. Our study contributes evidence to the Security and Exchange Commission's ongoing initiative to improve corporate financial statement disclosures. Using 359 responses from an experimental survey of nonprofessional investors (NPIs), we find that readability, in conjunction with risk factor type, significantly influences investors' judgments of probability and size of economic loss, cause for worry, and overall risk. NPIs judged the risk from an industry-related risk factor (competition) to be higher when written in plain English, but judged the risk of a company-specific risk factor (internal control weakness over financial reporting) to be higher when written in a less readable format (i.e., legalese). We found no significant differences in judgments between plain English and less readable language on a combined industry/company risk factor, information security. Results suggest that a move to plain English for all types of risk factors may have consequences that are not fully understood or expected. This area needs further research before regulators enact (or enforce) mandates for risk factors to be presented in plain English.

As technology provides more efficient and effective methods for financial reporting, students are encouraged to gain experience using these innovations. The SEC and other global financial communities have mandated the use of XBRL (eXtensible Business Reporting Language) for certain public filings. The following interactive exercise exposes students to XBRL and provides hands-on experience in using related tools. In Task 1, students learn about the underlying mechanics of XBRL. In Task 2, students use a programmed learning approach to analyze financial information using the SEC’s free interactive financial viewer. Task 3 includes discussion questions related to XBRL and specific accounting courses (i.e., financial, audit, managerial, and systems).

We employ a Layers of Workplace Influence theory to guide our study of whistleblowing among public accounting audit seniors. Specifically, we examine professional commitment, organizational commitment versus colleague commitment (locus of commitment), and moral intensity of the unethical behavior on two measures of reporting intentions: likelihood of reporting and perseverance in reporting. We find that moral intensity relates to both reporting intention measures. In addition, while high levels of professional identity increase the likelihood that an auditor will initially report an observed violation, the auditor’s commitment to the organization drives perseverance in reporting. Results may assist organizations and researchers in their understanding of antecedents to whistleblowing as a form of corporate governance and of the effect of these antecedents on whistleblowing perseverance.

SYNOPSIS: Using a multi-method approach, we explore accounting academics’ knowledge-sharing practices in an Electronic Network of Practice (ENOP)—the Accounting Education using Computers and Multimedia (AECM) email list. Established in 1996, the AECM email list serves the global accounting academic community. A review of postings to AECM for the period January–June 2006 indicates that members use this network to post questions, replies, and opinions covering a variety of topics, but focusing on financial accounting practice and education. Sixty-nine AECM members constituting 9.2 percent of the AECM membership base responded to a survey that measured their self-perceptions about altruism, reciprocation, reputation, commitment, and participation in AECM. The results suggest that altruism is a significant predictor of posting frequency, but neither reputation nor commitment significantly relate to posting frequency. These findings imply that designers and administrators of the recently launched AAA Commons platform should seek ways of capitalizing on the altruistic tendencies of accounting academics. The study’s limitations include low statistical power and potential inconsistencies in coding the large number of postings.

Public accounting firms rely on effective reporting of unethical behavior (whistleblowing) as a form of corporate governance. This study presents results from a survey of 122 in-charge level auditors, who indicated their likelihood of internal whistleblowing under three forms of identity disclosure for three independent scenarios. Reporting likelihood was significantly lower under a disclosed identity format, while there was no significant difference in likelihood between anonymous and protected identity formats. Contrasts reveal a significantly higher likelihood of reporting audit standards violations than a professional code violation. Likelihood was also positively related to measures of trust that the firm would investigate and act on the reported incident. Personal characteristics (i.e., locus of control and ethical style) were significant antecedents to whistleblowing intentions. Findings should aid public accounting firms and organizational governance researchers in their understanding of the determinants of auditors' whistleblowing propensity.

This is the author’s version of a work that was accepted for publication in the Communications of the ACM. Editorial and formatting changes may have been made to this version since it was submitted for publication. The final version of the article is available through licensed access provided by the publisher. Published in Communications of the ACM, 51(9), 128-131. doi: 10.1145/1378727.1389974. Members of the USF System may access the full-text of the article through the authenticated link provided below.

Proponents tout plain English as a solution for improving communication of complex information to users in various areas of business, medicine, and law. The SEC’s mandate to public companies to use Plain English in their Item 1a risk factor disclosures to make them more readable is one example. Using 365 responses from an experimental survey of nonprofessional US investors, we find that readability significantly influences investors’ perceptions of probability and size of loss, economic worry, and overall risk. Further, these effects interact with type of risk factor. Readability does not appear to influence investment decisions or perception of management credibility. Finally, we find that investors report that they do not use item 1a risk factors in their investment analyses in practice. Results suggest that this area needs further research before future mandates for plain English and risk factor disclosures are enacted.

In theory, enterprise risk management (ERM) appears to be a succinct and effective risk management model. In practice, as is the case with most managerial techniques, the devil is in the implementation. This study explores this issue by examining how the composition of ERM groups determines which risks are managed and which risks are ignored. In two experiments, we find that groups with accounting or financial backgrounds place greater emphasis on financial risks compared with cross-functional groups. Results suggest that organizations will achieve different ERM outcomes from using cross-functional groups than financially oriented group.

Is a happy nation a productive nation? Our study investigated this question by analysing records of the United States' aggregated level of job satisfaction and productivity as well as a cross sectional sample of countries throughout the world. Archival data from national surveys of job satisfaction and several indices of individual worker productivity from the Bureau of Labor Statistics database across the years 1987?2004, as well as international job satisfaction data and an index of the corresponding country's productivity, revealed that these two factors are not consistently related.