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Accounting research is hard to define because it has shifted over time. As a rough overview, early accounting research (pre-1960s) was mostly normative (i.e., arguing for the “correct” accounting treatment, or what should be). With the advent of the Journal of Accounting Research, advances in finance such as the efficient market hypothesis, creation of large data sets and the statistical abilities to analyze them (i.e., computers), and the publication of Ball and Brown’s seminal work in 1968, accounting research moved into positive research (i.e., examining what is rather than what should be). Although this change has had its critics, it has resulted in a significant increase in research output (and many new journals).
A cynical definition of research is: any paper that cites a lot of other accounting papers must be accounting research. This “quick and dirty” definition restricts accounting research to topics and methodologies that are well established in the literature; it is “safe” but somewhat limiting. More rigorously, Oler, Oler, and Skousen (2009) attempt to characterize accounting research by looking at the topics, research methodologies, and citations made by papers published in a set of six top accounting journals (AOS, CAR, JAE, JAR, RAST, and TAR). Their work can be criticized, though, because they do not consider all accounting journals, and because their categorizations of topics (6 of them) and research methodologies (7 of them) are broad. In spite of shortcomings, their paper appears to be the first that attempts to characterize and define accounting research, which they define as follows: “accounting research is research into the effect of economic events on the process of summarizing, analyzing, verifying, and reporting standardized financial information, and on the effects of reported information on economic events.”
Professors typically will choose a subject area and a methodology in which to focus their efforts. Subject areas include the topical areas considered under the umbrella term "accounting." These include information systems, auditing and assurance, corporate governance, financial, forensic, managerial, and tax.
General Overview of Accounting Research
“Academic research looks at how accounting affects the world around us and how the world affects accounting.” Teresa P. Gordon and Jason C. Porter
Accounting research plays an essential part in creating new knowledge. The hard sciences have produced models of research and testing that can be used and applied over many disciplines including accounting research. Using these models along with evidence such as financial statements, stock prices, surveys, experiments, computer simulations, and mathematical proofs, we can gain a scientific perspective and basis for the following:
- Deciding and implementing new accounting or auditing standards
- Presenting unusual economic transactions in the financial statements
- Learning how new tax laws impact clients and employers
- Discerning how the accounting profession affects the capital markets through academic accounting research
Researchers perform two main types of research, positive and normative.
- Positive research is the branch of academic research in accounting that seeks to explain and predict actual accounting practices.
- Normative research, in contrast, seeks to derive and prescribe "optimal" accounting standards.
Researchers use the scientific method to search for cause and effect relationships. By using the scientific method, the researcher has a systematic model that enables documentation of their results. The more specific the researcher is in documenting their methods, the better others will be able to follow and repeat their experiment.
- Observation: As with most research, accounting research begins with the researcher making an observation, seeing a potential pattern, or wondering how an action or event may affect a future action or event.
- Develop theory: The researcher then uses these observations to develop a theory or an explanation of might be causing these actions or events.
- Background research: Once the researcher finds an interest and develops a theory, background research on this theory is important. The background research is to help the researcher discover similar past theories, current and alternative theories, what evidence has been brought forth and tests performed. This research will save the researcher a great deal of time and guide their research to test a new aspect or help resolve areas of disagreement.
- Use theory to develop hypothesis: After this background research is conducted and existing theories discerned, the researcher will use their theory to create a specific hypothesis. This hypothesis should focus on an untested area or area of disagreement. Additionally, the hypothesis should make a specific prediction about how an action or condition will affect other actions or conditions.
- Test if hypothesis is correct: With a hypothesis developed, the researcher needs to identify sources of data and design tests to examine the hypothesis. The design of the tests should address the following:
- How well the study captures a cause-and-effect relationship;
- How well the variables used in a study capture the ideas and events in the hypothesis;
- How well the results from a study can be applied to other settings
- Examine test results: Once the tests have been designed, operated and data collected, the next step is to use statistical methods to compare the actual results with the hypothesized results and determine if there is significant evidence to confirm the hypothesis.
- Confirm or disconfirm theory: After the evidence has been examined and sensitivity analysis ran, the researcher can then confirm or disconfirm the hypothesis and theory the hypothesis was derived from.
Accounting Research Topical Areas
The following definition of research come from a research paper by Coyne, Summers, Williams, and Wood (2010, available here).
Accounting Information Systems (AIS)
Studies which address issues related to the systems and the users of systems that collect, store, and generate accounting information. Users are defined broadly to include those involved in collection, storage, or use of accounting information or even the implementation of the system. These systems may be electronic or not. Research streams include, but are not limited to design science, ontological investigations, expert systems, decision aides, support systems, processing assurance, security, controls, system usability, and system performance.
- For an example see Christ, Emmett, Summers and Wood (2011, available here)
- For an example see Myers, Starliper, Summers and Wood (2015, available here)
Studies in which the topical content involves an audit topic. These studies vary widely and include, but are not limited to, the study of the audit environment—external and internal, auditor decision making, auditor independence, the effects of auditing on the financial reporting process, and auditor fees.
- For an example see DeFond and Zhang (2014, available here)
- For an example see Prawitt, Sharp, and Wood (2011, available here)
- For an example see Gul, Wu, and Yang (2013, available here)
- For an example see Glover, Prawitt, and Wood (2007, available here)
Studies that address the topical content of financial accounting, capital markets, and decision making based on financial accounting information.
- For an example see Fields, Lys, and Vincent (2001, available here)
- For an example see Burton, Starliper, Summers and Wood (2014, available here)
- For an example see Atwood, Drake, Myers, and Myers (2010, available here)
- For an example see Christensen, Drake, and Thornock (2012, available here)
Studies that examine issues regarding budgeting, compensation, decision-making within an enterprise, incentives, and the allocation of resources within an enterprise.
- For an example see Ittner and Larcker (2001, available here)
- For an example see Presslee, Vance, and Webb (2013, available here)
- For an example see Emett, Guymon, Tayler, and Young (2015, available here)
- For an example see Bol, and Smith (2011, available here)
- For an example see Christ, Masli, Sharp, and Wood (2015, available here)
Studies that examine issues related to taxpayer decision-making, tax allocations, tax computations, structuring of accounting transactions to meet tax goals, tax incentives, or market reactions to tax disclosures.
- For an example see Hanlon and Heitzman (2010, available here) and Shackelford and Shevlin (2001, available here)
- For an example see Maydew (2000, available here)
- For an example see Barrick and Alexander (2014, available here)
- For an example see Kadous, Magro, and Spilker (2008, available here)
Other Topical Areas
Studies that do not fit into one of the other topical areas. The topical areas in these studies vary significantly and include such things as education, methodologies, law, psychology, history, the accounting profession, work environment, etc.
Accounting Research Methodologies
A researcher will select a methodology to determine how the research is to be conducted. There are three main methodologies for research in accounting: archival, analytical, and experimental.
One thing to avoid when discussing methodologies is to refer to one of the methods as "empirical" to differentiate from other methods. This is most often done by archival researchers who refer to their research as empirical and not to include experimental research under the "empirical umbrella." Empirical research is research that is verifiable based on observation or experimentation; thus, archival and experimental research are both empirical in nature.
Researchers who utilize analytical methods base analysis and conclusions on formally modeling theories or substantiated ideas in mathematical terms. These analytical studies use math to predict, explain, or give substance to theory.
- For a recent example of analytical research in accounting, see Gao (2010, available here)
Researchers who utilize archival methods base analysis and conclusions on objective data collected from repositories of third parties. Also included are studies in which the researchers collected the data and in which the data has objective amounts such as net income, sales, fees, etc.
- For a recent example of archival research in accounting, see Ball and Shivakumar (2008, available here)
Researchers who utilize experimental methods base analysis and conclusions on data the researcher gathered by administering treatments to subjects. Usually these studies employed random assignment; however, if the researcher selected different populations in an attempt to “manipulate” a variable, we also included these as experimental in nature (e.g., participants of different experience levels were selected for participation). Experimental research can include analyzing both economic and behavioral factors.
- For a recent example of experimental research in accounting, see Magilke, Mayhew, and Pike (2009, available here)
Other Research Methodologies
Studies that did not fit into one of the other methodological categories. The methodologies in these studies vary significantly and include such things as surveys, case studies, field studies, simulations, persuasive arguments, etc.
Skills necessary to be a successful researcher
Although there have been great discoveries made by accident that have changed the great paradigms of knowledge, academic research and the creation of knowledge is not an event left to chance. Academic research comes from mastering of skills that enable the researcher to carry out research processes that will contribute and progress the current accepted knowledge base and industry practices and open up new ideas and areas of research to follow.
Some of the skills necessary to become a successful researcher include the following:
- The ability to know and stay abreast of current work within your field of research.
- Staying abreast of the research being performed and the publication of such work, is important as you further your own research, discover new questions and problems and contribute to your fellow researchers. Being involved with workshops and peer reviews, as well as working with fellow professors and reading the publications in the peer journals are some ways in which to stay abreast of the current work in the industry. A listing of top journals can be found at Accounting Journals
- The ability to understand and recognize research problems.
- Researchers need not only stay abreast of current research being performed and published, they also need to understand and recognize difficulties in performing their own research or that of research performed by others.
- The ability to understand research content.
- The ability to read and understand the content of research articles is an important skill for academics and practitioners alike. Teresa P. Gordon and Jason C. Porter have a great list of hints to reading a research paper in their article Reading and Understanding Academic Research in Accounting: A Guide for Students. Read part of it here.
- The ability to discover where you can make a contribution, and to be able to evaluate and re-evaluate your contribution.
- The ability to discern a topic that will add knowledge to the field and trigger your interests is a great strength. Additionally, being able to evaluate the causality, strength, and validity of your research is important, not only when initially writing it, but to return and re-evaluate later and see if it needs to be edited or expanded.
- The ability to master appropriate experimental, mathematical, and computational research skills.
- It is necessary to build a strong base of mathematical and statistical tools to be able to draw on and enable you to build experiments that have good construct and internal validity.
- The ability to think critically and analytically.
- As you perform research, the ability to examine assumptions, assess evidence, discern hidden values, and evaluate the conclusion will be greatly utilized. Additionally, the ability to break a concept or paradigm into its constituent parts and then study the parts and find and evaluate the relationships between those parts is also a skill that will further your research goals.
- The ability to formulate plans to meet short-term and long-term goals and time-specific deadlines.
- The ability to follow good research practices.
- Being able to develop experiments or studies that are built on good solid research practices will strengthen the research you do and lend credibility to your work that fellow users can rely on.
- The ability to document and report your work.
- After the data is gathered and analyzed and conclusions are developed and confirmed, the researcher needs the ability to effectively communicate their work in a paper such as a thesis paper. The documenting of others who have worked in similar areas, contributed to your work, or you have used to further your research is important.
- The ability to communicate and defend a coherent argument to interested parties.
- Effective communication includes not only written papers, but the ability to address and defend your work in a public setting that includes fellow researchers and practitioners. To take criticism with a view to improve your work and strengthen the field is desirable.
- The ability to critically review the worth of your own work and the works of other researchers.
- A researcher needs to be able to critically review their own work as well as the work of others and assess the strengths and weaknesses of it. Determine if there is a causal relationship and to assess the various types of validity. See if there is strong enough internal validity – the strength of the controlled experiment. Evaluate the construct validity – is what is being measured actually capture the ideas and events in the hypothesis. Is there good statistical conclusion validity – when everything else is in place, is there strong enough evidence to prove an actual difference. And finally external validity, now that we have proven that this is valid in this situation, how does it transfer to other situations and other subjects. These are a few of the concepts to analyze the strength of your own work as well as the strength of your fellow researchers work.
Information for these key points and further information on research skills can be found at:
Guidelines on PhD Research and Supervision, Professor Roberto Cipolla, University of Cambridge;
Research Skills Required by PhD Students, Cloudworks;
Reading and Understanding Academic Research in Accounting: A Guide for Students, Teresa P. Gordon and Jason C. Porter, University of Idaho.
How accounting research can make a difference in the world
- Affect practice (usually high level decision makers, through textbooks)
- Mentor researchers' thinking who then change world through consulting, professional service, teaching
- Affect standard setters
This article focuses on how statistical sampling techniques are utilized in the field of accounting. Techniques such as auditing sampling are discussed. The role of the American Institute of Certified Public Accountants in the development of guidelines for this approach is highlighted. In addition, there is a historical overview of how statistical techniques were introduced into the field of accounting.
Keywords American Institute of Certified Public Accountants; Audit Sampling; Dollar Unit Sampling; Simple Random Sampling; Statement on Auditing Standard; Statistical Correlation Technique; Statistical Sampling Technique
Accounting: Statistical Applications in Accounting
Many have argued that statistics is important to the field of accounting. The tools of statistics can assist accountants with more effectively performing their job. In addition, "there is definite evidence in accounting periodicals of an increasing interest in the use of statistics, especially statistical sampling techniques, in accounting" (McGurr, 1960, p. 60). Many scholars have recognized that the two fields can yield creative results when they are combined. As a result, there was considerable interest in relating statistical methods to accounting, auditing, and management control during the post-war years (Trueblood & Cooper, 1955). Fan & Zhang (2012) show that statistical reporting is key to quality accounting practices.
Methods for Combining Statistics
Trueblood (1953) provided some foundational principles for guiding and organizing research in this area. Based on his report, the principles were:
- Collaboration between the two disciplines is crucial to the success of the partnership between the two fields. The accountant must be willing to work closely with the statistician when stating and defining accounting problems and objectives. The statistician is responsible for understanding the accountant's point of view in order to develop a joint development of technique. Both individuals must gain an understanding of the other's field in order to develop the basis for a common language.
- Statistical techniques that are used in other areas cannot be blindly accepted for accounting. There is a belief that time will be saved when existing statistical methods can be applied directly. However, it should be noted that there may be certain accounting problems that require new statistical techniques to be developed in order to solve them.
- Satisfactorily operating accounting techniques should not be supplanted by statistical procedures for the sake of change only. An increase in the use of accounting, auditing or management control techniques is the criterion for suggesting integration of present or new statistical techniques in the accounting field.
Further Study on Statistical
According to Trueblood and Cooper (1955), the Pittsburgh group found that many of the published statistical applications did not conform to the above mentioned principles. As a result, this group decided to conduct its own studies to support the principles that were discussed earlier. Some of these studies included:
- Internal accounting procedures and management control problems.
- In a small specialty steel manufacturing corporation, quality control charts were developed as a way to investigate performance variances on a daily basis. This experiment also produced practical procedures involving statistical correlation techniques to evaluate the consistency of cost standards.
- A LIFO price index based on statistical sampling was developed to yield reductions in cost, higher quality results and simplication of administrative problems. It was found that the data could be used for other managerial initiatives such as price index purposes. Some of these correlative initiatives included forecasting, establishing cost of sales determinants, and calculation of interim inventory turnover rates.
- Auditing cases.
- The aging of accounts receivable in department stores. The sampling procedures developed for aging purposes are directed toward both the control and audit processes.
- A statistical application was made to the evaluation of the recorded book value of inventory. The evaluation was completed by statistical analyses of adjustments to records developed from past cycle counts.
- An audit application had been made in relation to physical tests of bulk inventories for internal and external audit purposes. Two significant findings of this experiment were: The external auditor decided that his sample should be increased versus decreased, and; Statistical sampling cannot yield significant protection to the auditor in fraud detection without large samples.
Audit Sampling Technique
The American Institute of Certified Public Accountants' (AICPA) auditing standards board (ASB) had formed a task force to develop and implement an audit sampling policy for using the sampling techniques as described in Statement on Auditing Standards (SAS) number 39, Audit Sampling (Journal of Accountancy, 1983). The policy became effective for any examination of financial statements for periods ending on or after June 25, 1983. However, when a meeting was held in April, 1983, the ASB recommended that the AICPA provide additional guidance to practitioners for implementing the provisions. The task force's response was to create a question and answer (Q&A) list with the five most frequently asked questions by practitioners.
In 1992, the Audit Sampling and Analytical Techniques Committee of the New York State Society of CPAs conducted a survey of New York accounting firms. According to Hitzig (1995), the purpose of the survey was to obtain information regarding the use of audit sampling based on SAS No. 39, Audit Sampling. The main interest was to determine the level of use of the audit sampling technique by local accounting firms. A survey had been conducted in 1984 by the Audit Testing Techniques Subcommittee of the AICPA. However, it did not address the use of sampling in practice.
"To meet their clients' needs in an environment of heightened competition and runaway inflation, many auditors are turning to scientifically supported methods of planning, executing and evaluating audit procedures to obtain evidential matter. Statistical sampling is one such method" (Akresh & Zuber, 1981, p. 50). There are many ways that an accountant can set up a statistical sampling. Hitzig (2004) provided a model that worked on the premise that one could set up a statistical sampling by defining the population, frame and sampling unit.
The population is the set of all accounts or transactions that the auditor wishes to use in order to arrive at the conclusion. The first step in the process is to define the test objective. Once the test objective has been determined, the auditor should define the population. The steps are in this order so that the auditor can draw a sample based on the specific test objective.
Once the testing has been completed, the auditor must attribute the results to the items versus the population since auditors do not select a sample directly from the population. This representation is referred to as the frame. The frame provides the auditor with a foundation for identifying items to be included in a sample.
In most cases, the accounting population is presented in the form of a list (i.e. payroll file, accounts receivable detail). This list (or frame) tends to streamline and simplify the sample selection process. However, the population's sampling frame does not have to be a list. Sometimes, the physical locations provided by floor plans or other population identifiers...