Accounting professor Louise Hayes.Business managers, investors, creditors, taxing authorities, securities regulators, and many others need reliable information to make decisions.

“That’s what accounting does,” says accounting professor Louise Hayes, who started at U of G in July 2014. “It produces numbers that help people answer tough questions and make better financial decisions.”

Businesses can take months — or even years — to conclude business transactions. As Hayes explains, “This means that preparers of financial statements make a lot of estimates.” This accounting approach provides more up to date sales information than recording sales when customers pay, but it also increases the risk of misstated profits.

In addition to estimation errors, simple record-keeping errors are inevitable. Mistakes happen and, much less frequently, fraud occurs. Accounting systems include controls to prevent and detect both unintentional errors and intentional misstatements.

“While some of the problems in financial statements are due to fraud or irregularities, others are inadvertent,” she says. “Estimates won’t always be right, difficult accounting issues arise, and companies do not always invest sufficiently in accounting personnel and control systems.”

It’s unintentional errors that are of most interest to her.

When errors are discovered, adjustments need to be made in the accounts. Some of these adjustments, called restatements, alter amounts previously reported in financial statements. Hayes conducts automated text searches of the language in restatement announcements to identify companies correcting unintentional errors. Then, to explore factors related to the occurrence of these mistakes, she gathers company and auditor information, including biographical data, for the chief financial officers (CFOs) and board members.

“For example, many CFOs, particularly in the U.S., are appointed for their finance and management backgrounds and do not have accounting accreditations or audit experience,” she says. “Does this make a difference?”

Hayes is particularly interested in times when a business is restructuring and buying other companies. Past research shows that companies undergoing such changes report more control weaknesses.

“One question I want to answer is whether CFOs with financial accounting expertise can cope with these changes better and make fewer mistakes. I have found some evidence to support this idea.”

This research is the basis for Hayes’ PhD dissertation, which she successfully defended in December 2014. She had a long gap between completing her MBA, becoming a chartered accountant and returning to school for her PhD. In between, she worked as an IT audit specialist in Ottawa and Toronto, had three children, worked in the not-for-profit sector and eventually began teaching.

Hayes says going back to school for her PhD was difficult. “I had no real idea what was involved when I enrolled! It was challenging but I loved it, and I have definitely been bitten by the research bug.”