Chapter 3: The Research Process

Question 1

What is the accounting research process?

Answer 1

A step by step process that researchers can apply to a wide range of open-ended accounting issues.

Question 2

What are the steps in the accounting research process?

Answer 2

0. Understand the business (industry)
1. Understand the transaction
2. Define the research problem
3. Stop and think about possible solutions
4. Search for guidance
5. Analyze the alternative treatments
6. Justify and document your conclusion

Question 3

Simplified Research Process

Answer 3

• Understand the facts
• Define the problem
• Stop and think
• Search for guidance
• Analyze and document alternatives
• Justify and document conclusion

Question 4

Why is it important to understand a company’s business for researching a transaction.

Answer 4

Gives the appropriate context for considering company-specific accounting issues.

Question 5

What should you understand during the pre-research step?

Answer 5

• What are the primary business activities?
• What are the key revenue sources, and costs?
• What accounting practices are unique to this industry?
• What are some of the peer group companies in this industry?

Question 6

What are some resources to learn a company’s business or industry?

Answer 6

• AICPA Audit and Accounting Guides
• Deloitte Accounting Research Tool (DART)
• Hoovers
• Mergent
• IBIS
  -Search Engines
• Publicly available financial reports (10-K)

Question 7

Which sections of a 10-K look for to understand a company?

Answer 7

• Business (Item 1)
• Critical accounting policies and estimates
• Significant Accounting Policies

Question 8

What are resources for understanding a transaction?

Answer 8

• Transaction documents (contracts)
• Talking to transaction stakeholders
• Documents from previous similar transactions
• Industry peers with relevant experience

Question 9

Why is it impotant to identify the researchable question?

Answer 9

Doing so will bring focus to the researcher.

Question 10

What is the benefit of step 3 of the research process (Stop and think)?

Answer 10

It facilitates the researcher remaining objective and mitigates the researcher anchoring on the first idea.

Question 11

What are the steps of “Search for Guidance” (step 4)?

Answer 11

• Browse to the topic
• Copy potential Topics into a document
• Consult all required reading
• Consult nonauthoritative sources
• Review the collected guidance

Question 12

What are common biases?

Answer 12

• Confirmation Bias
• Availability Bias
• Recency Bias
• Anchoring and Adjustment
• Group Think
• Hindsight Bias
• Escalation of commitment

Question 13

Confirmation Bias

Answer 13

Inclination to seek information supporting our existing viewpoint and to downplay information supporting different options.

Question 14

Availability Bias

Answer 14

Tendency to weight more heavily that information which is readily available, and to overlook information which takes more time or effort to gather.

Question 15

Anchoring and Adjustment

Answer 15

The tendency to fixate on initial information received, and failing to adjust adequately for subsequent information.

Question 16

Group Think

Answer 16

Prioritizing the views of the most vocal, most respected, or most senior, member of a group.

Question 17

Hindsight Bias

Answer 17

Thinking - after the fact, once the outcome is known - that you would have made the right decision, or that you know the right answer all along.

Question 18

Escalation or commitment

Answer 18

Staying with a decision even when you suspect or have evidence that the decision is wrong.

Question 19

How do you overcome bias

Answer 19

• Acknowledge that biases exist
• Obtain information and viewpoints from a variety of sources
• Seek information that will challenge your existing views
• Listen and understand when someone disagrees with you
• Apply a systematic research process that enables you to evaluate issues carefully and methodically

Question 20

Decision Matrix

Answer 20

A systematic, importance-weighted decision making technique where numerical values are assigned to the importance of each decision criterion.