“When an accounting system is working well, you often don’t notice it. But when an accounting system breaks down, lots of people can get hurt,” says Molly Mercer, a professor at the School of Accountancy & MIS, whose research explores behaviors surrounding such breakdowns.
Mercer worked in audit before pursuing her PhD at the University of Texas. Originally from Wisconsin, she eventually found her way back to the Midwest and joined DePaul in 2009 to teach financial accounting. Today, she is the school’s Ezerski Endowed Chair of Accountancy.
“When we moved to Chicago, DePaul was the only school I was interested in joining,” she says. “I love teaching, so I wanted to be at a university that values teaching as much as I do, but that also recognizes the importance of research.”
An award-winning teacher and researcher, Mercer is an integral part of a group of faculty members at the school who research behavioral accounting. In fact, DePaul has ranked No. 20 nationally for behavioral research on auditing topics over the past six years, according to the Brigham Young University accounting rankings. Mercer herself is ranked No. 15 nationally for citations in financial behavioral research.
“I’m drawn to the psychological processes underlying the behaviors,” she says. “In other words, I want to understand why managers, auditors, investors and financial analysts behave the way they do. In cases where people make suboptimal decisions, how can we fix those decisions to make them better?”
Mercer’s most recent article, co-authored with Assistant Professor Christine Gimbar, who also works at the school, investigates whether auditors are able to predict the litigation and reputation consequences of inaccurate estimates. Their paper is forthcoming in the Contemporary Accounting Research journal and wouldn’t have been possible, she says, without the support of Ledger & Quill, the school’s donor society.
“Ledger & Quill members helped us develop the materials for our case and connected us with auditors to participate in our study,” says Mercer. “For the study to yield meaningful results, we needed experienced auditors who actually make decisions about the level of testing for accounting estimates. We wouldn’t have been able to find these auditors without the help of L&Q.”
Mercer and Gimbar created a scenario involving litigation related to an inaccurate warranty liability estimate. As part of their study, they showed the lawsuit case facts to three groups: mock jurors, the general public and auditors. Jurors were asked if the auditor was negligent for allowing the inaccurate estimate. The public was asked how they felt about the auditor after reading a news article about the lawsuit. Auditors then reviewed the same materials and were asked to predict whether jurors would find them negligent and how the public would perceive them. The study’s goal was to understand whether auditors recognize how outside parties view them.
“We found that auditors actually overestimated the blame they would receive from outside parties,” says Mercer. “In our study, both the jurors and the general public understood that estimates could be inaccurate for reasons outside the auditor’s control. As a result, they blamed the auditors less than the auditors expected.”
Why was this an important research question to ask? According to Mercer, studies such as hers can help improve resource allocation. Auditors are constantly trying to weigh risks and allocate resources according to those risks. As a result, it’s important that they fully understand their risks so that they can allocate correctly.
“In general, behavioral research in accounting is important because it provides accountants with valuable information they can use to improve their decision-making,” says Mercer. “As with all behaviors, if we don’t understand the things that affect what we do and how we are perceived, then it’s hard to improve.”
By Nadia Alfadel Coloma