In an article in Accounting and Business Research, Meier, Alam, and Pearson studied auditor lobbying on several proposed U. S. accounting standards that affect banks and savings and loan associations. As part of this study, the authors investigated auditors’ positions regarding proposed changes in accounting standards that would increase client firms’ reported earnings. It was hypothesized that auditors would favor such proposed changes because their clients’ managers would receive higher compensation (salary, bonuses, and so on) when client earnings were reported to be higher. Table 12.8 on the next page summarizes auditor and client positions (in favor or opposed) regarding proposed changes in accounting standards that would increase client firms’ reported earnings. Here the auditor and client positions are cross-classified versus the size of the client firm.
a. Test to determine whether auditor positions regarding earnings- increasing changes in accounting standards depend on the size of the client firm. Use α = .05.
b. Test to determine whether client positions regarding earnings- increasing changes in accounting standards depend on the size of the client firm. Use α = .05.
c. Carry out a graphical analysis to investigate a possible relationship between (1) auditor positions and the size of the client firm and (2) client positions and the size of the client firm.
d. Does the relationship between position and the size of the client firm seem to be similar for both auditors and clients? Explain.