Application of Theory in Research

Theories are not static. We are constantly modifying theories and developing new ones. Theories come in many forms and styles. Some are broad systems of thought while others are narrow and specific explanations of one particular issue. At their core, we use theories to organize and systematize our thinking and to deepen and extend understanding. Theories also become a way to communicate effectively with one another. Most research papers have theory somewhere. The studies we conduct will be better designed and stronger once we are aware of how theory and research fit together, that is basically called theorisation.

My research area is related to the influences of accounting standards on auditors' judgment decision making. Most of the papers use psychology theories to argue their position and support the experiment results. Below are the three examples of the utilisation of theory in the research papers:

(1) Kadous, K., Kennedy, S.J., Peecher, M.E. (2003). The effect of quality assessment and directional goal commitment on auditors' acceptance of client-preferred accounting methods, The Accounting Review, 78(3), 759-778.      
This paper examines whether requiring auditors to identify or justify the most appropriate of accounting treatments could actually lower their objectivity by amplifying their directional goals to accept aggressive client-preferred methods.

Motivated reasoning theory is applied to auditing context. Motivated reasoning theory states that individuals who are committed to directional goals engage in biased reasoning to achieve those goals (Kunda, 1990). Directional goals refer to one conclusion is preferred above others. In other words, individual with directional goals will search for, interpret, and process information in a biased way and , finally, are more inclined to reach the preferred goals.  In the auditing context, auditors tend to accept client preferred accounting treatment when the accounting standard is ambiguous. Hence, this study extends the motivated reasoning theory to examine whether requiring auditors to identify most appropriate method will amplify the influence of their directional goals on their acceptance decisions on client accounting treatment.

Results of the experiment support that auditors who make quality assessment are tend to accept the client's method when they are committed to their directional goals to do so. Hence, this theory is used to support the reasons behind auditors with directional goal to accept client accounting treatments.

(2)  Clor-Proell, S., & Nelson, M.W. (2007). Accounting standards, implementation guidance, and example-based reasoning, Journal of Accounting Research, 45(4), 699-730. 
This paper investigates whether the application of examples provided as implementation guidance for accounting standards will influence auditor decision to conclude accounting treatment is appropriate aligned with the example provided. Prior psychology research shows that practitioners engage in "example-based reasoning" will be likely to conclude that their case qualifies for the same treatment as the example.

Two streams of psychology theory are used in this paper. First, a simple model by Tversky (1977) examines the similarity comparisons and classification judgments. In that model, the similarity between two items, A and B, is a function of the features A and B share, less the features that A and B do not share. Most research shows that the weight associated with shared features are overstated and the weight associated with unshared features is often understated. Hence, the similarity of examples and the transaction under consideration is likely to be overstated.

A second related psychology theory involves priming, whereby some stimulus activates associations in memory that affect subsequent processing of information. Hence, auditors may be likely to conclude that the treatment used in the example is more appropriate for their situation than is actually the case.

The results of the experiment support the prediction that auditors are influenced by examples provided in the accounting standard especially if they are presented with affirmative example compared to counter example.

(3)  DeZoort, T, Harrison, P., & Taylor, M. (2006). Accountability and auditor's materiality judgments: The effects of differential pressures strength on conservatism, variability and efforts, Accounting, Organization and Society, 31, 373-390. 

This study examines the effects of differential accountability pressure strength on auditors’ materiality judgments. Specifically, this paper evaluates whether incremental levels of accountability (i.e., review, justification, feedback) increase judgment conservatism, decreases judgment variability, and increases effort.

This study uses accountability theory to examines the accountability effects on auditors' materiality decision making. Tetlock (1992) proposed a social contingency model that suggests accountability pressure can stimulate a politically motivated need to maintain the positive regard of important evaluative constituents. This perspective provides a basis for predicting coping strategies (e.g., the acceptability heuristic, defensive bolstering) and individual and situational moderators (e.g., tolerance for ambiguity, task subjectivity). This accountability pressures perspective is applied to auditors' materiality decision making when they are required to justify their decision to audit partners or receive feedback from partners on their decision.

The experiment results support that auditors under higher levels of accountability pressure (i.e., justification, feedback) provided more conservative materiality judgments and had less judgment variability than auditors under lower levels of pressure (i.e., review, anonymity).