Sustainability

• How Engagements with Bankrupt Clients Shape Individual Auditors’ Styles?

  Extant research provides compelling evidence that individual auditors have distinct auditing styles, which significantly impact audit outcomes (Gul et al., 2013; Lennox and Wu, 2018; Cameran et al., 2020). However, there is limited understanding of how auditing styles are shaped and evolve over time. In a recent study, forthcoming in the European Accounting Review, we addressed this gap by investigating how prior engagements with bankrupt clients (i.e., bankruptcy experiences) influence auditors’ professional skepticism, conservatism, and client management decisions, using data from a large sample of Swedish firms.

   

  We proposed that experiencing a client’s bankruptcy may lead auditors to reassess engagement risk upward, prompting them to adopt strategies (such as exerting more effort and providing higher quality audits) to reduce this risk to a tolerable level. Moreover, a client’s bankruptcy may reveal deficiencies in audit quality, exposing the auditor to regulatory scrutiny and increasing their litigation and reputation risks. Based on this line of reasoning, we predicted that auditors with bankruptcy experience will exhibit higher professional skepticism and deliver greater audit quality. We also expected these experiences to affect client management decisions, particularly by making them avoid financially distressed clients.

   

  We tested our predictions on a sample of Swedish public and private firms, which allowed us to observe auditors’ experiences and their impact across auditors’ entire portfolios. Our evidence revealed a positive and significant relation between auditors’ bankruptcy experiences and audit quality. In other words, their clients manage their earnings less. We also found that auditors with such experiences charge higher audit fees and are more likely to issue a going-concern opinion to financially distressed clients. However, these going concern opinions are not always more accurate. While auditors with bankruptcy experience are better at identifying distressed firms that subsequently go bankrupt, they tend to be overly cautious issuing more going concern opinions also to clients that do not ultimately go bankrupt.

   

  Bankruptcy experiences also affect client management decisions – auditors with bankruptcy experiences are less likely to accept financially distressed clients and more likely to resign from such clients. These effects were observed both at Big 4 and non-Big 4 audit firms, indicating that even standardized procedures and stronger quality controls of Big 4 firms are unlikely to countervail the influence of individual auditors’ styles and preferences.

   

  We also investigated the mechanisms through which the observed effects take place. The documented increase in audit quality delivered by auditors with bankruptcy experience may reflect a rational adjustment to previously suboptimal audit practices that exposed them to greater regulatory scrutiny and litigation risk. Alternatively, even if prior audit quality was adequate, bankruptcies can be lengthy and stressful events that harm an auditor’s reputation and may prompt them to reassess their audit risk assessments. Our analysis did not find evidence that prior audit quality was generally inadequate. However, we observed that the effects of bankruptcy experiences on audit outcomes and client management decisions were more pronounced when the auditors had been sanctioned.

   

  Finally, we examined how the saliency and recency of bankruptcy experiences affects auditors’ decision-making and found that bankruptcies of larger, more visible clients as well as bankruptcy events that occurred within the previous three years are more impactful for auditors’ behavior.

   

  In summary, our study highlights how prior professional experiences shape auditors’ decision-making and audit outcomes. Unlike prior studies investigating the effects of rare, once-in-a-lifetime events, we focused on bankruptcy experiences, which are in general more frequent, more recent, and more directly relevant to auditors’ decision-making. Our findings also suggest that audit styles are not time-invariant but evolve throughout an auditor’s career.

   

   

  References:

   

  Cameran, M., Campa, D., & Francis, J. R. (2022). The relative importance of auditor characteristics versus client factors in explaining audit quality. Journal of Accounting, Auditing & Finance, 37(4), 751-776.

  Gul, F. A., Wu, D., & Yang, Z. (2013). Do individual auditors affect audit quality? Evidence from archival data. The Accounting Review, 88(6), 1993-2023.

  Lennox, C. S., & Wu, X. (2018). A review of the archival literature on audit partners. Accounting Horizons, 32(2), 1-35.

   

   

  This post is by Mariya Ivanova at the Stockholm School of Economics and NHH Norwegian School of Economics, Milda Tylaite at the Stockholm School of Economics, and Liwei Zhu at CUNEF. It is based on their recent article, “The Impact of Client Bankruptcies on Auditors’ Judgment and Future Audit Engagements”, which is forthcoming at the European Accounting Review. 

   

• Call for Papers – The 2025 Illinois International Accounting Symposium

  Call for Papers

  The 2025 Illinois International Accounting Symposium will be held jointly with the Accounting Research Group at KU Leuven’s Faculty of Economics and Business in Belgium.

  Today’s rapidly evolving business and reporting environment is undergoing significant changes due to new regulations, heightened stakeholder expectations, and global initiatives aimed at improving transparency, accountability, and sustainability. The theme of the symposium will be “Regulatory Reform” (as related to accounting, corporate reporting, auditing, ESG, … ). However, innovative papers on other subjects will also be welcome. Selection of papers will depend on novelty, quality, and incremental contribution to the accounting literature. Submitted papers must not have been published or submitted elsewhere.

  Papers accepted for presentation at the symposium will be published in regular issues of The International Journal of Accounting, subject to satisfactory revisions and a positive review process. The symposium will contribute to the cost of travel of one author per paper.

  Deadline for submission: December 31, 2024

  Decision date: March 1, 2025

  Submit articles to The International Journal of Accounting here: https:/jwww.worldscientific.com/page/tija/submission-guidelines

  Please enter “2025 TIJA Symposium” for the submission category.

  Questions about the symposium may be addressed to Leigh Meador at tijajournal@business.illinois.edu

  PhD Consortium

  We will also be holding a doctoral consortium on the first day of the symposium (May 19) to assist.up to 25 PhD students with the research and development of their dissertations. Further information about the PhD consortium can be found here: https:/jgo.gies.illinois.edu/PhDConsortiumlnfo

  Symposium Organizers

  Marleen Willekens, Director of the Symposium, KU Leuven, Belgium

  Andreas Charitou, Director of PhD Consortium, University of Cyprus, Nicosia, Cyprus

  A. Rashad Abdel-khalik, Managing Editor, TIJA, University of Illinois at Urbana-Champaign, USA

  Simon Dekeyser, KU Leuven, Belgium

  Additional details and registration will be available on our website here: https:/jgiesbusiness.illinois.edu/upcoming/international-accounting-symposium

  Click on the flyer

• Summary of the Strategies to Create a More ‘Inclusive Classroom’ Event

  The “Inclusive Classroom” event was a joint initiative by the European Accounting Association and the American Accounting Association aimed at discussing strategies for fostering inclusive classroom environments. The event featured several speakers who discussed the importance of diversity, equity, and inclusion (DEI) in educational settings, specifically accounting education. The focus was on sharing practical strategies to create more inclusive classrooms, addressing diverse student needs, and identifying potential gaps in current practices.

  Key Takeaways per Speaker:

  • Ekaete Efretuei (Moderator, Liverpool John Moores University; Chair EAA DEIC): Introduced the event and set the tone by emphasizing the need to critically reflect on and implement strategies for inclusive classrooms. Highlighted the importance of applying DEI principles in both European and American contexts and beyond, with a focus on equity and fostering safe learning environments.
  • Norma Montague (Wake Forest University, AAA Director – DEI Focus): Emphasized the importance of creating classrooms where all students feel valued and supported, regardless of their backgrounds. She stressed the need for empathy, active listening, and collaboration. Montague also distinguished between equality and equity, advocating for teaching practices that accommodate diverse learning styles and backgrounds.
  • Lisa Powell (Monash Business School; EAA EC): Highlighted the importance of addressing both visible and invisible diversity characteristics, such as neurodiversity and LGBTQIA+ identity. She discussed the need for creating spaces where students feel comfortable sharing their diverse perspectives, and for educators to go beyond inclusive practices to challenge inequitable structures. Powell also noted that educators have the agency to implement inclusive practices in their classrooms, even if institutional support for DEI is limited.
  • Karen Osterheld (American Accounting Association): Discussed practical strategies for faculty to enhance inclusivity in their classrooms. She mentioned the importance of being flexible as educators and continuously learning to improve classroom inclusivity. Osterheld shared insights from the Inclusive Classroom Series, a set of modules designed to help faculty foster inclusivity through small, manageable changes in their teaching practices.

  Key Educational Strategies

  1. Create a Safe and Inclusive Learning Environment:

  • Strategy: Establish a classroom atmosphere where all students feel valued, respected, and included.
  • Details: This includes celebrating diversity and fostering a sense of belonging, where students feel comfortable to share their experiences, regardless of their background, identity, or learning style.
  • Application: Teachers should emphasize empathy, active listening, and collaboration, ensuring all students have equitable access to learning opportunities. For example, flexibility in teaching practices can help accommodate different needs and perspectives.

  2. Reflect on Subtle Bias and Classroom Dynamics:

  • Strategy: Educators need to be aware of their unconscious biases and how subtle forms of discrimination can manifest in classroom dynamics.
  • Details: Subtle biases, such as calling on certain students more frequently or responding differently to contributions based on gender or ethnicity, can affect students’ sense of belonging.
  • Application: Teachers can record their lectures to identify patterns in their interactions with students or invite external observers to monitor how they engage with different students. This helps recognize areas where subtle bias might exist and provides an opportunity for adjustment.

  3. Diverse Representation in Course Materials:

  • Strategy: Incorporate diverse names, backgrounds, and perspectives in case studies, examples, and teaching materials.
  • Details: By diversifying the representation of characters in examples (such as changing names and cultural contexts in case studies), educators help students from underrepresented groups see themselves in the material, making the learning environment more relatable.
  • Application: Simple modifications, such as varying gender, ethnicity, or socio-economic backgrounds in examples or case studies, can ensure that diversity is woven into the learning experience.

  4. Flexible and Adaptive Teaching Practices:

  • Strategy: Use a variety of teaching approaches to accommodate different learning styles and student needs.
  • Details: For instance, educators can change how they deliver content (e.g., videos, podcasts, transcripts) and allow students to engage with the material in ways that suit them best. This includes incorporating neurodiverse-friendly teaching strategies.
  • Application: For students who may struggle with traditional teaching methods, flexible tools like audio or visual materials, as well as different forms of assessments (e.g., oral presentations instead of written tests), can help ensure equal learning opportunities.

  5. Student-Centered Office Hours:

  • Strategy: Rebrand office hours as “student hours” to create an open, welcoming environment for students to seek help.
  • Details: The change in terminology signals that these times are specifically for students’ benefit. Offering flexible meeting locations (e.g., not just in formal office settings but also in informal spaces like cafés) helps create an atmosphere of accessibility.
  • Application: Educators can encourage more engagement by meeting students where they feel comfortable, reducing the intimidation factor of formal office settings.

  6. Active Learning and Engagement Techniques:

  • Strategy: Start class sessions with active learning strategies to engage students from the start, especially in early morning classes.
  • Details: Techniques such as polls, breakout discussions, or interactive group work can help activate students’ minds and energize them, even during early sessions.
  • Application: Educators can implement learning games, walk-in songs that connect to the topic, or activities that require students to interact with the material as soon as class starts.

  7. Inclusive Assessment Practices:

  • Strategy: Reconsider traditional timed assessments and offer alternative ways to assess learning.
  • Details: While time-limited tests may be necessary, mixing assessment types (e.g., projects, presentations, take-home exams) ensures that students who struggle with timed tests are not disadvantaged. Providing accommodations for students who need extra time, or offering alternative methods of demonstrating knowledge, creates more equitable conditions.
  • Application: Educators can incorporate multiple low-stakes assessments to reduce the high-pressure nature of a single test, ensuring a more comprehensive and inclusive approach to evaluating student learning.

  8. International and Collaborative Learning Projects:

  • Strategy: Involve students in international collaborative online learning (COIL) projects to expose them to diverse perspectives and working styles.
  • Details: By collaborating across time zones and cultures, students learn to navigate global challenges and develop cross-cultural communication skills. This kind of project teaches students to appreciate diverse approaches to problem-solving.
  • Application: Educators can partner with institutions in different countries to assign joint projects that require students from various regions to work together and overcome logistical challenges, such as time differences.

  9. Personalizing Feedback and Communication:

  • Strategy: Use personalized communication tools like mail merges to send tailored feedback or encouragement to students, particularly in large classrooms.
  • Details: Personalized emails or feedback make students feel recognized and valued, even in a large class setting. Grouping students based on their progress (e.g., high achievers, average, or struggling) and sending them appropriate feedback helps maintain individual connections.
  • Application: Educators can use technology to send personalized messages to students, acknowledging their progress and offering specific suggestions or praise, helping to keep them engaged and motivated.

  10. Encouraging Reflection and Empathy Development:

  • Strategy: Encourage self-reflection among both students and educators on issues of identity, privilege, and bias.
  • Details: Reflecting on personal identities and biases helps both educators and students understand their own positions in relation to others. This reflection is crucial for developing empathy and creating a more inclusive classroom environment.
  • Application: Instructors can build reflective activities into their courses, encouraging students to think about how their diverse identities intersect with others and how this affects their learning experiences.

  These strategies are designed to make classrooms more inclusive and responsive to the diverse needs of students, promoting a culture of equity, belonging, and continuous learning.

  Key Questions and Answers:

  1. How can we foster inclusivity in large classrooms?
     • Response: Faculty can use technology to engage students, such as online polls or anonymous response systems, ensuring everyone can participate. Personalized emails using mail merge techniques can also help students feel acknowledged. Flexibility in participation and assignment types can further enhance inclusivity.
  2. How can DEI be integrated into case studies?
     • Response: Small changes, like diversifying names, genders, and cultural contexts in case studies, can make a significant impact. Case studies should reflect the diversity of students and introduce multiple perspectives.
  3. How should educators handle timed tests while maintaining inclusivity?
     • Response: Some educators allow for extra time for students with accommodations, but this doesn’t always cover all students who may need it. An alternative approach is using a variety of low-stakes assessments to reduce the pressure of timed tests while still evaluating learning comprehensively.
  4. How do we adapt the inclusive classroom approach to different regions, such as Europe?
     • Response: The principles of DEI are universal, but adaptations may be necessary to account for local contexts. For example, indigenous perspectives may be more relevant in certain regions, while other areas may focus on different aspects of diversity, like gender or cultural diversity.
  5. What if DEI efforts are not supported institutionally?
     • Response: Educators can still implement inclusive practices by reframing DEI initiatives using terms like “belonging” or “global inclusion.” Even in regions where DEI is not officially supported, educators have the flexibility to create inclusive spaces in their classrooms.

  The event concluded with a call for ongoing collaboration, the sharing of resources, and continuous reflection on how to create inclusive learning environments across different educational contexts.

  The AAA Inclusive Classroom Series Information is a series of videos, hosted on the AAA’s new Learning Management System, begins with a 40-minute foundational module followed by nine specific topical modules of approximately 20 minutes each. Upon completion of the ten modules, participants earn a certificate of completion and a digital badge. This can be found at: https://eaa-online.org/arc/learning-on-dei-and-accounting/. All modules are free to AAA members and non-members, but registration is required. The modules can be completed in any order.

• Double Materiality and ESRS-ISSB Interoperability

  Since EFRAG and the ISSB began developing their respective sets of sustainability reporting standards, we’ve been grappling with a question that we’ve never really found a satisfying answer to (maybe we haven’t thought hard enough): On what grounds can a firm argue that a material impact („I“; only ESRS) that it has on people or the planet is NOT also a financially material risk or opportunity („RO“; both ESRS and IFRS SDS)?

  How does this relate to interoperability? If no such argument can be made (i.e., if all impacts are also ROs), then interoperability between ESRS and IFRS SDS is perfect and the standards are symmetric: compliance with one implies compliance with the other. (Do we then need both sets of standards?) But if that scenario (material impact: yes—material financial RO: no) does exist, then interoperability is only partial, due to asymmetric standards, where compliance with ESRS (double materiality) would imply compliance with IFRS SDS (financial materiality), but not vice versa.

  One of us raised this question again during today’s EAA online workshop with Richard Barker (ISSB) and Kerstin Lopatta (EFRAG SRB). Richard Barker provided a compelling answer. He pointed out that this very dilemma—impact on people and the planet, but no corresponding financial materiality for investors—is what defines an externality: an action by a firm that affects the environment or society without financial consequences for the firm. As we all know, externalities do exist empirically. They are, after all, the main reason for the sustainability reporting conversation we are having, with climate change being the prime example of a large-scale externality due to market failure. Firms want to (and can, and do) argue that (some of) their societal and environmental impacts are not financially material, and in many cases, investors agree. So, thank you, Richard, for the much-needed clarity!

  But after the workshop, we began to wonder: What kind of impacts can investors (and firms) safely view as financially immaterial when—in a world of viral news, investigative journalists, and NGO campaigns—almost any impact can turn into a reputational crisis? A seemingly trivial environmental or social misstep can quickly escalate into consumer boycotts, loss of talent, strained supplier relationships, or regulatory pushback (e.g., Rana Plaza or Exxon Valdez)—all of which investors will eventually factor into stock valuations. So, are investors deeming some impacts immaterial simply because (and only as long as) they aren’t aware of them? Is there even a perverse incentive to be (or stay) unaware—because becoming aware via public disclosure will deflate the stock? Might asking for such disclosures trigger the very financial impact that incumbent investors have an incentive to avoid?

  We wonder: Shouldn’t disclosure requirements address this very gap—by bringing information to light and ensuring that stakeholders, and eventually investors, recognize these impacts as financially material because they’ve been revealed? Shouldn’t disclosure requirements aid investigative journalists, NGOs, and other societal actors—and, ultimately, investors themselves—in getting managers to disclose what they’d rather keep secret: their firms‘ negative externalities? And doesn’t it seem a design flaw of standards that managers themselves, via the materiality assessment, get to second-guess what investors might find financially material—ultimately getting to decide what they’d like to disclose? (Under ESRS, the double materiality assessment at least forces managers to confront the impact materiality perspective explicitly.)

  In other words, shouldn’t disclosure requirements aim to internalize externalities rather than just elicit what investors are already aware of? Shouldn’t they flush out matters that become financial material only through their being disclosed? In the extreme: Can a standard setter add value by giving investors information that we know they consider financially material because they already have it and are acting on it? Or should it contribute to enriching investors‘ information sets by giving them access to information that they may care about but currently cannot because they are kept in the dark about it?

  To us, these considerations speak in favor of a low materiality threshold, and of allowing investors to decide for themselves if they care. Circling back to the above: There seem to be good reasons for aligning impact materiality and financial materiality to a near overlap. Why not adopt EFRAG’s double materiality approach and let investors sort out for themselves which of the reported impacts they think affects firm value? And why not put the onus on management to explain why they assume that a material impact of their firm on people and the planet would NOT cause investors to reconsider their firm‘s valuation if they knew about it? Should we allow managers alone to decide which matters are worthy of investors‘ attention?

  Consider this thought experiment. Assume Exxon learned about the dangers of human-caused greenhouse gas (GHG) emissions decades ago, as California Attorney General Rob Bonta insinuates in California’s lawsuit against Big Oil for damages related to human-made climate change. Assume that there had been IFRS SDS at the time. Would Exxon then have had to disclose that fact (and its GHG emissions) as financially material? Would we have wanted them to make that call? Or wouldn’t we have preferred forcing them to disclose their GHG emissions (and any other environmentally questionable practices) and letting investors decide whether they consider them financial risks for Exxon, if only in the long run? How about Big Tobacco and cancer risk?

  While Richard‘s thankfully answer clarified the issue conceptually, we believe important questions remain open, and we’d love to hear your thoughts. Please share your comments below. And a big Thank You to the EAA for these incredibly insightful online workshops—they bring together great speakers and thoughtful moderators on critical issues.

  Thorsten Sellhorn and Victor Wagner

• About Beta Alpha Psi

  Founded in 1919, Beta Alpha Psi is an honors organization for financial information students and professionals. There are over 300 chapters on college and university campuses with over 300,000 members initiated since Beta Alpha Psi’s formation. All of our chapters are AACSB, ACBSP, EPAS, EFMD, and/or EQUIS accredited. We are not a fraternity or sorority but an honors organization.

  Purpose

  The purpose of Beta Alpha Psi is to engage with members, industry and educational institutions associated with the Beta Alpha Psi Professions to:

  Academic Excellence
  Motivate, recognize and celebrate academic excellence

  Professional Development
  Facilitate workplace readiness, employment, credentialing, mentoring, networking and lifelong learning

  Responsible Practices
  Foster a commitment to ethics, service, belonging, and environmental, social, governance-responsible practices

  Advocacy
  Advocate for the benefits of education, practice, credentialing and partnering associated with the Beta Alpha Psi Professions

  Shaping
  Support the shaping of the relevant and successful evolution of education, practice and credentialing associated with the Beta Alpha Psi Professions

  VISION

  Beta Alpha Psi will shape the financial and business information professions by developing members into ethical, professional, and confident leaders.

  MISSION

  The mission of Beta Alpha Psi, the premier international honor and service organization for financial and business information students and professionals, is to inspire and support excellence by:

  • encouraging the study and practice of accountancy, finance, business technology, and analytics,
  • providing opportunities for service, professional development, and interaction among members and financial professionals; and
  • fostering lifelong ethical, social, and public responsibilities.

  Diversity/Inclusion/Belonging Policy

  Beta Alpha Psi is committed to fostering a culture of diversity, inclusion and belonging. We believe that bringing together diverse backgrounds, cultures and perspectives provides our stakeholders and members a safe environment to develop and grow both professionally and personally. All chapters are responsible for promoting a diverse, inclusive and welcoming environment.

  Anti-Hazing Policy

  Beta Alpha Psi does not tolerate any type of actions or activities related to hazing. Hazing is defined as any action or activity that intentionally encourages mental or physical discomfort, embarrassment, harassment or ridicule to anyone. Any chapter that participates in any activity that can be considered hazing shall have their charter revoked immediately.

  Funding

  Beta Alpha Psi gains a portion of its annual budget from a chapter maintenance fee and a one-time initiation fee.

  Although there are other minor revenues from royalties and interest on investments, the bulk of the receipts come from contributions from industry, consulting and professional service firms.

  Emblem

  The emblem of Beta Alpha Psi denotes the promise of careers for financial information professionals. The rising sun signifies these professional positions as rising ever higher among economic activities. The crossed keys symbolize knowledge as a means of opening the doors of the financial world. The letters Beta, Alpha, and Psi denote scholarship, social responsibility, and practicality, respectively.

• Is auditors’ migration status associated with their performance?

  Education is meant to foster the development of individuals and promote equality. However, in China, the uneven development across regions may undermine this mission. Graduates from universities in less developed areas often face discrimination in the job market, while their peers from more developed regions enjoy unfair advantages. This study investigates this issue, providing evidence of such discrimination.

   

  Specifically, the researchers looked at how the quality of work performed by auditors in China is influenced by where they studied before entering the job market. They found that auditors who moved from less developed to more developed regions generally provided higher-quality audits than those who stayed in their original areas. This finding suggests that employers, during the interviewing and screening of graduates, might have set a higher bar for students graduating from underdeveloped regions, requiring these students to pose higher capabilities to surpass this higher threshold.

   

  Conversely, auditors who moved to less developed regions tended to deliver lower-quality audits, showing that the capabilities of these students have been over-estimated by their employers in the selection process. This underserved advantage lowers the bar for these students to pass.

   

  The difference in audit quality also influenced their career success, with those who moved upwards in economic development doing better in their careers.

   

  Overall, the study highlights how regional disparities can impact professional opportunities and outcomes, shedding light on an important issue in the job market. The researchers call for debiasing in employers’ recruitment process so that students studying in less developed regions can have more opportunities to progress their career, helping to achieve the mission of education.

   

  Wen He (wen.he1@monash.edu), Monash Business School, Monash University

  Chao Kevin Li (k.li@adelaide.edu.au), Adelaide Business School, The University of Adelaide

  Yi Si (acsiyi@xjtu.edu.cn), The School of Management, Xi’an Jiaotong University

  This blog is based on the paper:

  He Wen, Chao Kevin Li, Yi Si. Is auditors’ migration status associated with their performance?. European Accounting Review, Forthcoming. https://www.tandfonline.com/doi/abs/10.1080/09638180.2024.2384379

• Exploring Multi-Level Drivers of Accountants’ Opinions on the Changes Introduced by the Corporate Sustainability Reporting Directive

  Accounting, traditionally seen as a tool for optimizing economic performance, is now increasingly recognized as essential for supporting sustainability initiatives. Accountants play a key role in advancing sustainable development through their expertise in governance, risk management, business analysis, and their ability to effectively track and report on companies’ performance, as well as verify their reporting.

  The recently introduced Corporate Sustainability Reporting Directive (CSRD) expands reporting requirements to a broader range of companies and mandates assurance of these reports to enhance the quality and reliability of the information provided. How do accountants perceive these changes, and what factors influence their opinions on the new sustainability reporting regulations?

  In our article, “Exploring Multi-Level Drivers of Accountants’ Opinions on the Changes Introduced by the Corporate Sustainability Reporting Directive,” published in Accounting in Europe, my co-authors, Ewelina Zarzycka, Paweł Zieniuk, and I explore the following research questions (RQs):
  RQ1: What drives accountants’ opinions on the increased scope of sustainability reporting regulation?
  RQ2: What drives accountants’ opinions on mandatory sustainability reporting assurance?

  By conducting a survey of 1,076 Poland-based accountants in 2021 and employing logit regression analysis, we found that drivers at the transnational level (international regulations and standards), organizational level (benefits tied to sustainability reporting), and individual level (knowledge of reporting regulations) positively influence accountants’ support for the new CSRD measures. Conversely, drivers at the national level, such as membership in a professional accountants’ association, were found to be irrelevant.

  This study contributes to the literature by applying the Aguilera et al. (2007) multilevel model of social change to explain accountants’ attitudes towards regulatory changes. The findings provide valuable insights for regulators, standard setters, and educators who seek to understand and influence the evolving roles and opinions of accountants in sustainability reporting. For effective implementation of the CSRD, a collaborative approach involving national accounting bodies and regulators is recommended to promote knowledge sharing and skill development among accountants.

  Additionally, countries with later adoption of sustainability reporting may need to invest more in developing accountants’ knowledge and skills to align with those in countries where sustainability practices are more established. Tailored professional development and education are essential to fostering a more supportive attitude towards the CSRD’s requirements and facilitating the profession’s transformation towards sustainable development.

  We hope you will find our study interesting!

   

• Moving beyond Beyond Budgeting

  As in Shakespeare’s story of Hamlet, who contemplates whether to live or die, budgeting has for a long time been debated as a matter of “to be or not to be.” In our recent paper in the European Accounting Review, we wish to renounce this understanding.

   

  The context

  We studied a large Scandinavian bank and found that it had abandoned budgeting and reinstated it in a new form. Despite its listing on the stock exchange and demands for predictable financial performance, the bank operated without a corporate budget for almost two years. Therefore, during our case study, we were interested in understanding how budgeting changed upon reintroduction.

   

  Beyond Budgeting: an alternative to budgeting?

  For years, the bank relied on tight budget control at the corporate level. Executives were used to being evaluated on various performance measures encapsulated in the budget, which resulted from an aggregation of negotiated decentral budgets (i.e., a bottom-up approach).

   

  However, the accounting department had become aware of the Beyond Budgeting framework. Originally proposed by Jeremy Hope and Robin Fraser, the framework entailed 16 principles for abandoning traditional budgeting and achieving better performance through radical decentralization. Since the bank was organized in a decentralized structure, the accounting department found this framework interesting, so when the opportunity for abandoning the corporate budget arose following a data warehouse structuring, they presented the idea to the Board of Directors.

   

  Although they were skeptical at first, the Board of Directors came to see the forecasting model, which was developed to provide realistic macroeconomic projections on the bank’s revenues and costs, as an effective replacement for the corporate budget. This forecasting model was inspired by Beyond Budgeting, yet the new control element did not lead to a prolonged abandonment of budgets.

   

  Budget reintroduction

  The corporate budget was reintroduced after a couple of years, but budgeting had taken a new form in the bank. Realizing the benefits of the forecasting model, forecasts were used to create the corporate budget, which was established via macroeconomic projection and decoupled from the decentralized budgets. As a traditional budget, this budget was fixed for the calendar year and used to control costs. Meanwhile, the forecasting model continued to provide updated information each quarter within the fixed time horizon of the calendar year and was used to project revenues.

   

  The takeaway

  With our paper, we wish to bring attention to the important understanding that budgeting is not a question of either using budgets traditionally or completely abandoning budgets to move Beyond Budgeting. Rather, budgeting is a complex management control system encompassing various control elements, such as budgets and forecasts. When considering how budgeting best solves different purposes (e.g., planning, controlling, or performance evaluation), some control elements may be more appropriate than others. We found the forecasting model effective in controlling revenues and budgets effective in controlling costs, but more importantly, budgeting led to better planning and performance evaluation when forecasts and budgets were used at the same time.

   

  Looking forward

  In the future, we are excited to learn more about budgeting in other contexts. While we focused on the corporate level, budgeting may function differently, and for different places, in specific functions, or inter-organizational collaborations. We hope our paper can inspire

  to unfold the dynamics of management control systems in theory and practice. Feel free to contact us if you have any questions or comments.

   

  Per Nikolaj Bukh (pnb@pnbukh.com), Aalborg University Business School

  Amalie Ringgaard (sofiear@business.aau.dk), Aalborg University Business School

  Niels Sandalgaard (nis@business.aau.dk), Aalborg University Business School

   

  This blog is based on the paper:

  Bukh, P. N., Ringgaard, A., & Sandalgaard, N. (2024). Moving beyond Beyond Budgeting: A ase study of the dynamic interrelationships between budgets and forecasts. European Accounting Review. https://doi.org/10.1080/09638180.2024.2362681

• Training of future accountants in higher education institutions of Ukraine

  The article discusses some issues of teaching students the specialty “accounting”. The disciplines that were taught to future accountants in the 50s, 70s, 80s and in independent Ukraine are considered. Thus, it is possible to study the genesis of education of accountants in relation to the requirements of the time and economic situation. The clearly demonstrated difference between compulsory (fundamental) disciplines and auxiliary (elective, credit) disciplines clearly shows at what time which disciplines were considered the most important andwhich were secondary. Accounting theory should be a set of postulates, methods, limitations/exceptions used in the study of accounting, its maintenance, as well as in the preparation of financial and management reporting. Moreover, the “embedded” basic knowledge should further contribute to individual professional development! The author emphasizes the need for a systematic study of the curricula of higher educational institutions (using a clear example of the curriculum of the specialty “Accounting and Analysis of Economic Activities” of the Kyiv Institute of National Economy named after D.S. Korotchenko, approved in 1982). ) in order to rethink the number of disciplines, the definition of hours (active and passive) and the sequence of teaching disciplines. Some problems are identified regarding disciplines that can be excluded from curricula (second foreign language, physical education) and transferred to electives. Instead, the curriculum could be filled with individual disciplines (professional ethics ofaccountants and auditors, organization of accounting and reporting, etc.) to acquire professional competencies. Any revision of the current curriculum should be based on one thing -what new requirements for accounting and reporting, for an accountant, what changes have occurred in the country and in the world! And what kind of accountant is needed today, and most importantly for the future, with what knowledge and skills for practical work.

  https://ete.org.ua/index.php/journal/issue/view/3
  https://ete.org.ua/index.php/journal/article/view/118/27

• Voluntary Adoption of Recommended Reporting Practice in the Nonprofit Sector

  The activity and influence of nonprofit organizations has grown exponentially in recent years. Associated financial framework requirements facilitate standardization and transparency of information regarding organizations’ financial affairs and provide a means to foster greater stakeholder trust. However, global nonprofit reporting financial framework requirements vary dramatically, from mandatory detailed reporting to recommended practices to completely voluntary.

   

  A detailed nonprofit financial reporting framework, Charities Statement of Recommended Practice (Charities SORP), has been promulgated for both the UK and Ireland. While adoption is mandatory in the UK, the Irish nonprofit sector currently operates under a voluntary financial reporting system. This unique setting provides a means to assess the use and benefits of a formal, government recommended reporting practice, where adoption will soon be made mandatory.

   

  Our study published in the European Accounting Review (Dwyer, Harris & Murphy, 2024), analyzes an industry diverse sample of 23,124 nonprofit year observations for 6,593 unique Irish nonprofit organizations. It examines determinants and funding consequences of voluntarily using Charities SORP in advance of mandatory adoption.

   

  We show that there has been a steady increase in the adoption of Charities SORP, with use more than doubling between 2015-2020. We also show that Irish nonprofit organizations with more external oversight from regulators, auditors and funders as well as those with more resources are more likely to adopt Charities SORP. In addition, we observe that organizations are more likely to adopt Charities SORP when peer organizations in the same industry/county have already adopted SORP.

   

  With regard to funding consequences, our findings highlight that Irish nonprofit organizations following Charities SORP receive more future funding support from both donors and government grantors. We also observe that donors reward smaller and educational organizations voluntarily adopting Charities SORP than larger, non-educational organizations. In addition, we find that more efficient organizations and those that spend more on advertising their mission are rewarded with higher future donation support.

   

  Our findings provide important insights for nonprofit regulators in jurisdictions that have yet to establish financial reporting requirements and for those that have recommended practices. Mindful of several recent high-profile charity scandals, we support calls to encourage nonprofit organizations to adopt the expanded reporting framework provided by Charities SORP as a means to rebuild stakeholder trust.

   

   

  Article available here:

  Dwyer, KAM., Harris, E. & Murphy, B. (2024) Voluntary Adoption of Recommended Reporting Practices: Evidence from the Irish Nonprofit Sector, European Accounting Review, DOI: 10.1080/09638180.2024.2384376