(BLOOMINGTON) – Three accounting professors at the Indiana University Kelley School of Business will receive the 2020 Deloitte Foundation Wildman Medal Award from the American Accounting Association.
The Wildman Medal recognizes research that is “judged to have made or will be likely to make the most significant contribution to the advancement of the practice of public accountancy.”
Patrick Hopkins, chair of the Undergraduate Program and the Glaubinger Chair for Undergraduate Leadership as of August 1 and previously faculty chair of Graduate Accounting Programs; Joe Schroeder, associate professor of accounting; and Lori Bhaskar, assistant professor of accounting, will receive the award on August 12, as part of the virtual annual meeting of the American Accounting Association.
They were honored for their paper, “An Investigation of Auditors’ Judgments When Companies Release Earnings Before Audit Completion,” which was published in the Journal of Accounting Research in May 2019. It also was supported by the Center for Audit Quality.
While there were many benefits that came from the adoption of the Sarbanes Oxley Act of 2002 and the establishment of the Public Company Accounting Oversight Board as the regulator of public company audits, there were also some unintended effects. Among them were increasing requirements and regulations that led to year-end audits taking longer and being no longer completed as of the client’s earnings announcement date.
This shift in timing resulted in earnings announcement financial results being less reliable and overall financial reporting quality being lower. Hopkins, Schroeder and Bhaskar’s study showed that when clients elect to release the earnings announcement before the audit is finished, this puts the auditor in a precarious position that affects their judgment, speaking for the need for a strong audit committee.
“We found that a client releasing earnings before the audit is complete places considerable pressure on auditors to avoid year-end audit adjustments,” Bhaskar said. “Under these circumstances, we found that audit partners and senior managers unintentionally engage in biased information search and evidence evaluation in a manner that supports the client’s aggressive accounting treatment. These findings are concerning for the audit practice and for investors given the vast majority of public companies now release earnings prior to the completion of the audit.”
“While we demonstrated that a client releasing earnings before the audit is complete will reduce the quality of audit partner and senior managers’ judgments and decisions regarding detected misstatements, there is hope,” Schroeder added. “We demonstrated that the ‘unconscious bias’ in audit partner judgments is mitigated when the there was a strong and proactive audit committee that was committed to strong oversight of the client.
“It demonstrates the importance of strong proactive audit committees that advocate for the audit process,” he added. “For investors, this means it is important to invest in a strong audit committee function as it will ensure the proper oversight of management who work on behalf of the investors. It ensures that investors have accurate financial information by which they can truly evaluate management and make investment decisions.”
Part of a proud Kelley tradition
Hopkins, Schroeder and Bhaskar join a Kelley tradition of such recognition by the American Accounting Association.
Leslie Hodder, faculty chair of Graduate Accounting Programs and the Conrad Prebys Professor, received the Wildman Medal in 2009 for the paper, “Fair Value Accounting for Liabilities and Own Credit Risk.”
Brian Miller, professor of accounting and PWC Fellow, received a similar honor in 2013, when his paper, “The Importance of Distinguishing Errors from Irregularities in Restatement Research: The Case of Restatements and CEO/CFO Turnover,” received the AAA’s Notable Contributions to Accounting Literature Award.
The Deloitte Foundation Wildman Medal Award was founded in 1978 to commemorate John Wildman — a longtime partner at Deloitte and the first president of the American Association of University Instructors in Accounting, which later became AAA — and to encourage research relevant to the professional practice of accounting. Recipients are chosen by an award committee, and the award is sponsored by the Deloitte Foundation.
For Schroeder, who left a career in public accounting in 2008 to pursue a career in academia, the honor is very meaningful.
“My goal was to work on research that can help inform the regulatory process and practitioner community so that we can collectively strive to improve the quality of audits and financial reporting for stakeholders,” he said. “Every study I have worked on over the past 12 years has roots from my public accounting career. This recognition validates the role we as academics play in the regulatory process and makes me proud to know that we are making a difference to society.”
“As researchers, we constantly strive to make a difference through our work. To win an award that is focused on the intersection of rigorous empirical research and professional practice is extremely gratifying,” Hopkins added. “Kelley has invested in and actively promoted a culture of research excellence in the 25-plus years I’ve been on faculty at IU. As a result, we have an amazing bench of talented research scholars who happen to also be great people. I’m extremely thankful to have this group as colleagues.”
Information from George Vlahakis of Kelley School of Business