Managerial Accounting

Aggregation, and minimizing associated information loss, is a pervasive theme in accounting. In contrast, this paper highlights some potential benefits of aggregation, using simple examples to illustrate ideas from a number of recent papers in a parsimonious manner. Aggregation rules can improve decision making because of their ability to convey appropriate information and because such rules may permit offsetting errors. Turning to control problems, aggregation has merit in the provision of both explicit and implicit incentives.

Maintaining auditor independence is vital to the auditing profession. This article argues that the auditor-client relationship exhibits special traits that make maintaining auditor independence easier than in other accountant-client relationships. In particular, the auditor-client relationship satisfies a one-sided separability condition, as the auditor is not involved in the structuring of transactions (unlike other accountants).

The basic premise of this paper is that academic accountants and financial accounting standard setters have traded places in their normative vs positive orientations. Academics have shifted from normative to positive, while standard setters have shifted from positive to normative.

This monograph presents existing and new research on three approaches to multiagent incentives. The goal of all three approaches is to find theories that better explain observed institutions than the standard approach has.

Valuation involves forecasting payoffs and discounting expected payoffs for risk. Forecasting is often seen as the province of the statistician, risk determination the province of asset pricing. This paper elaborates on the idea that financial forecasting, risk determination and valuation are a matter of accounting. Accounting not only provides information to forecast payoffs but also specifies the payoffs to be forecasted.

We investigate whether accounting discretion is (i) abused by opportunistic managers who exploit lax governance structures, or (ii) used by managers in a manner consistent with efficient contracting and shareholder value-maximization. Prior research documents an association between accounting discretion and poor governance quality and concludes that such evidence is consistent with abuse of the latitude allowed by accounting rules.

A criticism of mechanism design theory is that the optimal mechanism designed for one environment can produce drastically different actions, outcomes, and payoffs in a second, even slightly different, environment. In this sense, the theoretically optimal mechanisms usually studied are not "robust." To study robust mechanisms while maintaining an expected utility maximization approach, we study a multiagent model in which the mechanism must be designed before the environment is as well understood as is usually assumed.

We investigate how nonfinancial performance measures (NPMs) can be used to encourage cooperation across divisions. The implementation of a project often requires joint efforts by multiple divisions. However, privately informed division managers sometimes find it in their self-interest to forgo profitable joint projects or to underinvest in relationship-specific assets.