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How Do Auditors View Managers Voluntary Disclosure Strategy The Effect Of Earnings Guidance On Audit Fees
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Book Synopsis How do Auditors View Managers' Voluntary Disclosure Strategy? The Effect of Earnings Guidance on Audit Fees by : Gopal V. Krishnan
Download or read book How do Auditors View Managers' Voluntary Disclosure Strategy? The Effect of Earnings Guidance on Audit Fees written by Gopal V. Krishnan and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this study is to examine the relation between attributes of earnings forecasts issued by managers and audit fees. Although there is an extensive literature on managers' disclosure of earnings forecasts, there is a paucity of research on how auditors incorporate information from these voluntary disclosures. We find that the issuance of an annual or quarterly management earnings forecast in the prior period is positively associated with the current period audit fees. Our results indicate that on average, audit fees are higher by about 7% for firm-years associated with an annual forecast. Among the firms that issue earnings forecasts, we find no association between audit fees and likelihood of updating a previously issued earnings forecast, indicating that auditors do not view such behavior negatively. Further, we find audit fees to be positively associated with the error and the bias (or optimism) in the forecasts for annual forecasts but not for quarterly forecasts. Overall, these results suggest that management's forecast behavior captures higher business risk for the auditor via greater risk of earnings management or litigation risk.
Book Synopsis Issues in Accounting, Administration, and Corporate Governance: 2013 Edition by :
Download or read book Issues in Accounting, Administration, and Corporate Governance: 2013 Edition written by and published by ScholarlyEditions. This book was released on 2013-05-01 with total page 249 pages. Available in PDF, EPUB and Kindle. Book excerpt: Issues in Accounting, Administration, and Corporate Governance: 2013 Edition is a ScholarlyEditions™ book that delivers timely, authoritative, and comprehensive information about Logistics. The editors have built Issues in Accounting, Administration, and Corporate Governance: 2013 Edition on the vast information databases of ScholarlyNews.™ You can expect the information about Logistics in this book to be deeper than what you can access anywhere else, as well as consistently reliable, authoritative, informed, and relevant. The content of Issues in Accounting, Administration, and Corporate Governance: 2013 Edition has been produced by the world’s leading scientists, engineers, analysts, research institutions, and companies. All of the content is from peer-reviewed sources, and all of it is written, assembled, and edited by the editors at ScholarlyEditions™ and available exclusively from us. You now have a source you can cite with authority, confidence, and credibility. More information is available at http://www.ScholarlyEditions.com/.
Book Synopsis Integrated Reporting and Audit Quality by : Chiara Demartini
Download or read book Integrated Reporting and Audit Quality written by Chiara Demartini and published by Springer. This book was released on 2017-04-13 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book analyzes the relationship between integrated reporting and audit quality within the European context, presenting empirical evidence and drawing on a broad review of the available literature in order to evaluate the ability of integrated reporting to enhance audit risk assessment. Dedicated sections first elucidate the concepts of integrated reporting and audit quality. The main integrated reporting frameworks are compared, the role of integrated reporting within a firm’s disclosure is examined, and all aspects of audit risk are discussed. The key question of the impacts of integrated reporting on the components of audit risk is then addressed in detail, with reference to empirical findings, their practical implications, and their limitations. The concluding section explores the future of corporate reporting and the development of the next integrated reporting framework and summarizes the insights that the analysis in the book offers into the relationship between integrated reporting and audit quality in the European setting.
Book Synopsis The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality (Classic Reprint) by : Richard M. Frankel
Download or read book The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality (Classic Reprint) written by Richard M. Frankel and published by Forgotten Books. This book was released on 2018-03-03 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt: Excerpt from The Relation Between Auditors' Fees for Non-Audit Services and Earnings Quality This paper provides empirical evidence on the relation between non-audit services and earnings quality. We test hypotheses concerning: (1) the association between a firm's purchase of non-audit services from its auditor and earnings management, and (2) the stock price reaction to the disclosure of non-audit fees. In the past decade there has been a dramatic increase in the proportion of fee revenue auditors derive from non-audit services, yet we know little about how non-audit services are related to earnings quality.1 Concern about the effect of non-audit services on the financial reporting process was a primary motivation for the Securities and Exchange Commission (sec) to issue revised auditor independence rules on November 15, 2000. The rules require firms to disclose the amount of all audit and non-audit fees paid to its auditor. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
Book Synopsis Three Essays on the Voluntary Disclosure and Managerial Incentive by : Ling Tuo
Download or read book Three Essays on the Voluntary Disclosure and Managerial Incentive written by Ling Tuo and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The importance of an effective corporate communication with all stakeholders including shareholders has been extensively debated in the business literature in the aftermath of 2007-2009 global financial crisis. The key indicator of business value have shifted from accounting profits and stock market performance, formerly, to firm reputation and sustainability performance, currently. Therefore, the transparency and value-relevance of conventional financial reporting has been questioned in terms of its capability to satisfy increasing information needs of all stakeholders. Many doubt whether those traditional financial metrics derived from financial statements can appropriately capture firm & rsquo;s long-term value creation ability. In recent years, users of corporate reports are demanding more relevant financial and non-financial on key performance indicators and forward looking information above and beyond conventional financial statements. To satisfy the demands of information users and decision makers, companies are expected to not only increase their reporting transparency in conventional financial statements but also disclose more inside information to outside public through different types of voluntary disclosure. The first dissertation investigates the role of sustainability report through examining the associations among voluntary disclosure, earnings quality and audit fee. Recently more and more firms begin to release sustainability reports, one important channel of voluntary disclosure, to satisfy the needs of information users and increase the transparency of financial reporting. In this paper, I especially examine the effect of voluntary disclosure quality on those associations. Through Difference-in-Difference test, I find that the release of sustainability report is positively correlated with innate earnings quality and negatively correlated with discretionary earnings quality. Moreover, the positive (negative) correlation between sustainability report and innate (discretionary) earnings quality is more (less) pronounced when the voluntary disclosure quality is high. I also find that the release of sustainability report is associated with higher audit fees and thus it suggests that the sustainability report cannot substitute the traditional financial statement. My conclusions are robust through additional tests of OLS regressions. This paper has important political, academic and industry application. The second dissertation investigates how the firm & rsquo;s cost stickiness strategy is associated with the firm & rsquo;s management earnings forecast (MEF). I conjecture that the managerial incentive regarding the cost strategy and voluntary disclosure strategy are interdependent. When managers choose their cost management, they will also choose the corresponding management earnings forecast strategy to align their interests. Through the empirical tests with a sample between year 2005 and 2011, I find that the firm & rsquo;s level of sticky cost is positively associated with the firm & rsquo;s propensity to issue MEF and the frequency of MEF. Moreover, I find that the firm & rsquo;s level of sticky cost is associated with more good earnings news forecasted by managers. Finally, I find that the relation between cost stickiness and MEF behaviors is more pronounced when the MEF is long-horizon oriented and when the firm efficiency is high. My research builds a link between financial accounting information and managerial accounting information, and also provides new evidence to understand the managerial incentives behind each strategy chosen by managers. This third dissertation investigates how industry peer firms tend to influence the specific firm & rsquo;s voluntary disclosure strategy. Through examining the empirical example of management earnings forecast between 2005 and 2011 and implementing the 2SLS regressions, I find that the specific firm & rsquo;s disclosure frequency, disclosure horizon and the disclosure of bad news are significantly influenced by its peers firms & rsquo; disclosure behaviors. Specifically, the increase in the peers & rsquo; disclosure frequency, disclosure horizon and disclosure of bad news tend to encourage the specific firm to increase its disclosure frequency, disclosure horizon and disclosure of bad news. Moreover, certain firms (such as firms with S & P credit rating, higher profit, larger size or higher market-to-book ratio) tend to be more sensitive to their peer firms & rsquo; voluntary disclosure strategy. Finally, I find that the specific leader-follower relation doesn & rsquo;t exist in the peer effects of disclosure strategy and thus the signaling theory, litigation risk and CEO reputation are more major reasons than herding theory and free rider theory in explaining this phenomenon.
Book Synopsis Essays in Audit Market, Enforcement Actions, and Voluntary Disclosures by : Seong Jin Ahn (Accounting professor)
Download or read book Essays in Audit Market, Enforcement Actions, and Voluntary Disclosures written by Seong Jin Ahn (Accounting professor) and published by . This book was released on 2018 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is comprised of three empirical essays relating to audit market, SEC enforcement actions, and voluntary disclosure. The first essay investigates the effects of auditor office location on client and auditor surplus. Using a two-sided matching market model, I find that, while both clients and auditors bear the costs of geographic distance, auditors disproportionately bear costs. Although distance exerts costs on clients, clients incur distance costs to gain auditor expertise. Next, I examine how the stickiness of audit office locations affects equilibrium audit market matches. The immobility of audit office locations results in a market-wide surplus loss of 1.6%, and leaves 8% of clients worse off. In addition, by aggregating individual client-auditor surplus at the MSA and state level, I find that in underserved regions, clients are more likely to choose their second-best auditors, and auditors are more likely to extract rents from clients. Finally, relocating audit offices in overserved regions, such as Detroit and Cincinnati, to underserved regions, such as Austin and Houston, improves market-wide surplus, and therefore, leaves clients and auditors in both regions better off. Overall, this paper contributes to the literature by highlighting how an audit market friction (stickiness in audit office location) affects surplus and auditor matches. The second essay examines whether SEC insider trading charges deter illegal insider trading activity among non-targeted insider employed by firms in the same industry. The second essay is co-authored with Jared Jennings. Using a hand-collected sample of SEC insider trading charges, we find that non-targeted insiders at peer firms execute less profitable non-routine purchases following the disclosure of the SEC insider trading charges. We find that the insider non-routine purchase results are concentrated among non-targeted insiders at peer firms that are geographically closer to the targeted firm. We find no consistent evidence that non-targeted insiders at peer firms execute less profitable non-routine sales after SEC insider trading charges are filed. These results provide evidence on the effectiveness of SEC enforcement actions on deterring questionable insider trading activities. Lastly, the third essay examines the implications of unbundled management forecast news for future earnings and returns. This third essay is co-authored with Zachary Kaplan and Salman Arif. We find that positive (negative) management forecast news predicts higher (lower) unexpected earnings over the upcoming year, but this positive predictive relation flips to negative over the following year. Further, while stock returns initially drift in the same direction as the news in the management forecast, returns begin to reverse beginning six months after the forecast and this reversal continues over the following two years. We conduct several analyses which suggest that return reversals occur because investors over-extrapolate the news from management forecasts. First, we find that positive (negative) management forecast news leads to analyst earnings forecasts that are excessively optimistic (pessimistic). Second, we find that management forecasts which are less persistent (e.g. forecasts by firms with higher earnings volatility and forecasts that convey negative news) are associated with larger return reversals. Third, we find that increasing the frequency or providing forecasts for a number of horizons mitigates the return reversals. Overall, our findings contribute to our understanding of the information conveyed by management forecasts and suggest that market participants overreact to unbundled management forecasts.
Book Synopsis The Relation Between Auditors' Fees for Non-audit Services and Earnings Quality by : Richard M. Frankel
Download or read book The Relation Between Auditors' Fees for Non-audit Services and Earnings Quality written by Richard M. Frankel and published by . This book was released on 2002 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the association between the provision of non-audit services and earnings quality. Because of concerns regarding the effect of non-audit services on financial reporting credibility, the Securities and Exchange Commission recently issued revised auditor independence rules requiring firms to disclose in their annual proxy statement the amount of fees paid to auditors for audit and non-audit services. Using data collected from proxy statements filed between February 5, 2001 and June 15, 2001, we present evidence that firms purchasing more non-audit services from their auditor are more likely to just meet or beat analysts' forecasts and to report larger absolute discretionary accruals. However, the purchase of non-audit services is not associated with meeting other earnings benchmarks. We also find that the unexpected component of the non-audit to total fee ratio is negatively associated with stock returns on the filing date. These results are consistent with arguments that the provision of non-audit services strengthens an auditor's economic bond with the client and that investors price this effect. Keywords: Auditor independence; Auditor fees; Earnings management; Discretionary accruals. JEL Classification: G12, M41, M43, M49, L84.
Book Synopsis Voluntary Disclosure in Corporate Control Contests--evidence of Management Earnings Forecast Characteristics and Consequences by : Jinqiu Yan
Download or read book Voluntary Disclosure in Corporate Control Contests--evidence of Management Earnings Forecast Characteristics and Consequences written by Jinqiu Yan and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation examines how managerial incentives in contested takeovers affect voluntary disclosure strategies. I study characteristics of voluntary disclosure around contested takeovers, based on the conjecture that good news in earnings forecasts serves as a defensive strategy to resist a takeover and/or to negotiate a higher offer price. To gauge the relation of voluntary disclosure on takeover consequences, I examine the association between voluntary disclosure and target premiums as well as the length of time to resolve the acquisition. Using a difference-in-differences research design, I find that relative to friendly targets, target management in contested target firms alters the timing of normal information flows by forecasting more good news during the takeover. Managers also manipulate the content of information by releasing optimistically biased forecasts during the takeover to favorably influence the market. Further investigations indicate that target firms adopt voluntary disclosure and alter strategies at the time of contested takeover as a means to convey favorable inside information. The stock market responds positively to optimistic forecasts issued during the contested takeover. Moreover, voluntary disclosure influences contested takeovers by helping target firms negotiate better offers and postpone the M&A process. As a whole, this study demonstrates that target firms adopt voluntary disclosure and alter their strategies under the threat of contested takeover to reveal their true worth and enhance their bargaining power. Unlike prior literature that documents value-destroying managerial entrenchment resistance, voluntary disclosure by targets with favorable information induces information leakage and is one of the resistance tactics that potentially benefits target shareholders.
Book Synopsis The Effects of Voluntary Interim Auditor Reviews on Audit Fees and Earnings Quality by : Balthasar Hoehn
Download or read book The Effects of Voluntary Interim Auditor Reviews on Audit Fees and Earnings Quality written by Balthasar Hoehn and published by . This book was released on 2013 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: The interim reporting process provides decision-useful information to investors and market participants. However the legal circumstances of external interim auditor reviews differ worldwide. A mandatory review rule in the US as opposed to a contrary decision of the German legislator raises the question of the cost-benefit-relation of auditor reviews. Using a German sample of 1,023 firm-year observations from 2007 to 2010, I extract the costs and benefits of voluntary interim reviews. The unique German legal environment makes it possible to split the cost effect of a review in the price effect (included in audit-related fees) and a possible reduction of audit fees resulting from an improved year-around audit process. I observe a significant increase of audit and audit-related fees of around 14.5% (total fee effect) and declining audit fees for reviewed firms as compared to a matched sample. The effect on quarterly earnings quality shows no significant influence.
Book Synopsis Voluntary Certification and Disclosure of Internal Controls Over Australian Financial Reporting, Audit Fees and Value Relevance by : Mukesh Garg
Download or read book Voluntary Certification and Disclosure of Internal Controls Over Australian Financial Reporting, Audit Fees and Value Relevance written by Mukesh Garg and published by . This book was released on 2015 with total page 356 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis draws on agency theory to primarily investigate whether CEOs' and CFOs' voluntary certification of internal controls over financial reporting (hereafter, ICFR) is associated with audit fees and value relevance of Australian financial reports. The thesis also examines whether corporate governance and audit quality are associated with the likelihood that firms provide the CEOs' and CFOs' voluntary ICFR certification. While agency theory predicts that firms with high agency costs are less likely to implement sound internal control procedures, however, sound corporate governance and higher audit effort provides avenues to mitigate such high agency costs. This theoretical framework is used to examine three Research Questions. CEOs' and CFOs' voluntary ICFR certification is a recommendation within the Australian Securities Exchange Corporate Governance Council Best Practice Recommendations. The ICFR certification states that the integrity of financial reports is formed on the soundness, efficiency and effectiveness of firms' risk management systems and internal compliance and controls (hereafter, CERTDISC). While disclosure of ICFR certification is not mandated, if there is a non-compliance of the recommendation, that information has to be disclosed in the annual report with an "if not why not" approach. Studies in a mandatory disclosure setting in the US find internal control deficiency is related to several firm level outcomes. For example, it is found to be negatively associated with earnings quality (Doyle, Ge and McVay, 2007b; Ashbaugh-Skaife, Collins, Kinney and LaFond, 2008; Chan, Farrell and Lee, 2008), positively associated with audit fees (Raghunandan and Rama, 2006; Hoitash, Hoitash and Bedard, 2008; Lu, Richardson and Salterio, 2011) and positively associated with cost of equity (Beneish, Billings and Hodder, 2008; Ashbaugh-Skaife, Collins, Kinney and Lafond, 2009). The inferences drawn from studies in a mandatory setting may not be applicable in a voluntary environment where disclosures of good news as opposed to bad news, are affirmative and not assured by an external auditor. Three specific related Research Questions are examined in this thesis: (1) Are corporate governance and audit quality associated with ICFR certification and disclosure? (2) Is ICFR certification and disclosure associated with audit fees? (3) Is ICFR certification and disclosure value relevant? This thesis aims at establishing a view on the effect of CERTDISC on audit fees and the value relevance of CERTDISC by investigating whether firms with strong corporate governance and audit quality implement CERTDISC and whether auditors and investors are affected by CERTDISC. Prior studies show that the effectiveness of the board and audit committee positively affects voluntary disclosures and the quality of ICFR (Klein, 2002; Leuz, Nanda and Wysocki, 2003; Beekes, Pope and Young, 2004; Agrawal and Chadha, 2005; Farber, 2005; Ashbaugh-Skaife, Collins and LaFond, 2006; Doyle, Ge and McVay, 2007a). Sound, effective and efficient ICFR reduces the auditors' control risk which, in turn, according to the audit risk model, increases detection risk. Firms with high detection risk (the risk that the auditor's testing procedures will not be effective in detecting a material misstatement) require less audit effort and therefore lower audit fees, ceteris paribus. The thesis is conducted using a sample of 498 Australian listed firms in 2004, the year post the introduction of CERTDISC provisions. In testing first Research Question it is found that firms audited by big-4 audit firms are associated with CERTDISC. Moreover, it is found that the positive association between corporate governance and CERTDISC is stronger for firms audited by big-4 auditors consistent with agency theory. In the audit fee tests to address Research Question 2, it is found that while CERTIDISC has no significant main effect on audit fees, corporate governance has a significant positive main effect. This suggests firms with strong corporate governance are likely to demand higher audit effort also consistent with agency theory and a study by Carcello, Hermanson, Neal and Riley Jr (2002). However, when CERTDISC and corporate governance variables are tested for interaction effect, it is found that there is a significant positive interaction effect between CERTDISC and corporate governance on audit fees. Further analysis of the interaction effect suggests that the effect of CERTDISC on audit fees is conditional on corporate governance. In point of detail, it is found that at low levels of corporate governance, there is a negative association between CERTDISC and audit fees but at progressively higher levels of corporate governance, the effects of CERTIDISC become weaker. In other words, CERTDISC has a negative effect on audit fees only for firms with low corporate governance. The results from the examination of the value relevance of CERTDISC for addressing Research Question 3 suggest that CERTDISC is positively associated with share price. More specifically, it is found that the value relevance is more prominent for firms with higher information asymmetry proxied by three measures namely audit by big-4 versus non-big-4 audit firms (non-big-4 client firms are assumed to be associated with higher information asymmetry), bid-ask spread and stock liquidity. These results suggest that investors find CERTDISC most useful for firms with high information asymmetry. Findings suggest that costly ICFR audit environment similar to that in the US under Section 404 of Sarbanes Oxley Act, 2002 may not be required as the market is able to recognize the information conveyed by the existence of ICFR. Finally, from the theoretical point of view, this thesis provides evidence consistent with theoretical predictions in agency theory. More specifically, agency theory predicts that stronger internal controls and a commitment by top management (tone at the top) to implement ICFR procedures reduces potential agency conflicts between managers and shareholders thus resulting in higher firm valuation, ceteris paribus. This thesis contributes to the extant literature on ICFR by investigating a unique unaudited and voluntary ICFR certification and disclosure regime. The findings have implications for investors when making an investment decision as it informs them of the reliance they can place on CERTDISC. The thesis also provides some information to the corporate regulators on whether an alternative to the regulation (Section 404 of Sarbanes Oxley Act, 2002) adopted by the US should be considered in Australia. Finally, the thesis adds to the audit fee literature by showing that both corporate governance and ICFR certification affect audit fees. It also adds to the "value relevant" literature by showing that ICFR certification information is value relevant to investors for a sample of Australian listed firms, and that the extent of value relevance depends on the information environment; ICFR is less relevant for firms with big-4 auditors and for firms with low information asymmetry.
Book Synopsis The Relation Between Auditors' Fees for Non-audit Services and Earnings Quality by : Frankel Richard M
Download or read book The Relation Between Auditors' Fees for Non-audit Services and Earnings Quality written by Frankel Richard M and published by Legare Street Press. This book was released on 2023-07-18 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This groundbreaking study explores the relationship between auditors' fees for non-audit services and the quality of earnings reported by companies. Using data from a large sample of publicly traded firms, the authors show that there is a strong correlation between the two variables, and suggest that this could be a cause for concern for investors and regulators. The authors also provide recommendations for improving the transparency and reliability of financial reporting. This book is essential reading for anyone interested in the intersection of accounting, auditing, and corporate governance. This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work is in the "public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.
Book Synopsis The Genesis of Voluntary Disclosure by : Kristian D. Allee
Download or read book The Genesis of Voluntary Disclosure written by Kristian D. Allee and published by . This book was released on 2019 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate a firm's decision to initiate earnings guidance during its first year as a public company following its initial public offering (IPO), which we label “early guidance.” Using a sample of firms with IPOs between 2001 and 2010, we find that almost 60% of our IPO firms provide early guidance and that only one third of the firms that do not provide guidance during the first year subsequently decide to guide. Consistent with the importance of liquidity incentives following the IPO, we find that firms are significantly more likely to provide early guidance when their IPOs are backed by venture capital or private equity investors. Our results indicate that firms with higher IPO information quality are more likely to provide early earnings guidance. We also find that early guidance has significant implications for future disclosure choices. Firms that guide soon after the IPO are significantly more likely to guide again and to provide regular future guidance (i.e., they establish a regular guidance policy). Finally, we find evidence suggesting that the credibility of initial guidance is lower than that of subsequent guidance, and subsequent guidance credibility relates to both the length of firms' guidance history and the accuracy of their initial guidance disclosures.
Book Synopsis Earnings Management Pressure on Audit Clients by : Nathan J. Newton
Download or read book Earnings Management Pressure on Audit Clients written by Nathan J. Newton and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates whether auditors respond to earnings management pressure created by analyst forecasts. Analyst forecasts create an important earnings target for management, and professional standards direct auditors to consider how this pressure could affect their clients. Using annual analyst forecasts available during the planning phase of the audit, I examine whether this form of earnings management pressure affects clients' financial statement misstatements. Next, I investigate whether auditors respond to earnings forecast pressure through audit fees and reporting delay. I find that higher levels of analyst forecast pressure increase the likelihood of client restatement. I also find that auditors charge higher audit fees and delay the issuance of the audit report in response to pressure from analyst expectations. Finally, I find that when audit clients are subject to high analyst forecast pressure, a high audit fee response by auditors mitigates the likelihood of client misstatements. The electronic version of this dissertation is accessible from http://hdl.handle.net/1969.1/151105
Book Synopsis Consequences of Voluntary Disclosure for CEOs by : Ping Wang
Download or read book Consequences of Voluntary Disclosure for CEOs written by Ping Wang and published by . This book was released on 2011 with total page 172 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Relation between Auditors' Fees for Non-Audit Services and Earnings Management by : Richard M. Frankel
Download or read book The Relation between Auditors' Fees for Non-Audit Services and Earnings Management written by Richard M. Frankel and published by . This book was released on 2003 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether auditor fees are associated with earnings management and the market reaction to the disclosure of auditor fees. Using data collected from proxy statements, we present evidence that non-audit fees are positively associated with small positive earnings surprises, the magnitude of absolute discretionary accruals, and the magnitude of income-increasing and income-decreasing discretionary accruals. In contrast, audit fees are negatively associated with these earnings management indicators. These results are robust to a variety of alternative variable definitions and model specifications. Specifically, contrary to the claims of Ashbaugh et al. (2002), the results are robust to the use of performance-matched discretionary accruals. Moreover, contrary to the claims of Francis and Ke (2002), the results for small positive earnings surprises are robust regardless of whether the comparison group is all other earnings surprises or small negative earnings surprises. Our final set of results provide evidence of a significant negative association between non-audit fees and share values on the date the fees were disclosed, although the effect is small in economic terms.
Book Synopsis Interpretive Guidance and Financial Reporting Costs by : Dain C. Donelson
Download or read book Interpretive Guidance and Financial Reporting Costs written by Dain C. Donelson and published by . This book was released on 2017 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the effect of interpretive accounting guidance on a direct and observable cost of financial reporting: audit fees. Many contend that U.S. GAAP has too much interpretive guidance, making it complex and difficult to assimilate. This effect would lead to higher audit effort and higher fees. However, specific guidance could both lower litigation risk and increase audit efficiency by reducing the need for auditors to continually deliberate complicated accounting issues across engagements. These effects would lead to lower audit fees. Overall, using both levels and changes regressions, we find that interpretive accounting guidance is associated with higher audit fees. However, this effect is smallest for firms facing the highest ex-ante litigation risk. Finally, we examine whether increased audit fees persist and find that the audit fee effect disappears by the third year after the interpretive guidance becomes effective. Overall, we find no evidence that interpretive guidance decreases audit costs.
Book Synopsis Abnormal Audit Fees and Earnings Management Using Classification Shifting by : Xudong (Daniel) Li
Download or read book Abnormal Audit Fees and Earnings Management Using Classification Shifting written by Xudong (Daniel) Li and published by . This book was released on 2018 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research has intensively debated whether abnormal audit fees purely indicate audit effort or client-auditor economic bonding (Francis 2011). However, this empirical debate is mostly based on the findings of the associations between audit fees and accrual-based earnings management. Unlike accrual-based earnings management, earnings management through classification shifting does not change the bottom-line numbers and thus involves lower litigation costs. Given the difference in litigation costs between the two forms of earnings management, the effect of abnormal audit fees on the incentives of auditor in dealing with the behavior of earnings management could be different. It is thus interesting to examine how audit fees affect auditors' incentives on their clients' earnings management with potential lower litigation risks.Using data from years 2000-2010, we find a significant and positive cross-sectional association between the magnitude of abnormal audit fees and the level of classification shifting, a result supporting the notion that greater abnormal audit fees allow for more earnings management through classification shifting. This observed result further indicates that using abnormal audit fees to purely measure audit effort or economic bonding might be questionable as the effect of abnormal audit fees on opportunistic accounting practices could differ, depending on the specific form of earnings management activities associated with the level of potential litigation costs.
