In this paper we investigate the reputational penalties to managers of firms announcing earnings restatements. More specifically, examine management turnover and subsequent employment displaced at restatements during 1997 or 1998. contrast prior research (Beneish 1999; Agrawal et al. 1999), which does not find increased following GAAP violations revelation corporate fraud, that 60 percent restating experience a least one top manager within 24 months restatement compared 35 among age-, size-,...

ABSTRACT We test the relationship between change in a firm's cost of debt and disclosure material weakness an initial Section 404 report. find that, on average, credit spread its publicly traded marginally increases if it discloses weakness. also examine impact monitoring by rating agencies and/or banks this result that is more pronounced for firms are not monitored. Additional analysis indicates effect bank appears to be primary driver these results. This finding consistent with argument...

This paper examines IPO audit fees to assess the use of industry specialization as a differentiation strategy by firms. We extend existing theory on impact incorporating Porter's (1985) competition and differentiation. suggest that market share enables firms gain competitive advantages in terms cost service. However, such depends whether firm has successfully differentiated itself from competitors within client industries. Our results indicate increases without share, fee charged for given...

SUMMARY: We examine the relationship between auditor competition and likelihood of financial restatements that occur as a result failures in application generally accepted accounting principles (GAAP). Policy makers audit market participants have expressed concern current level is low, resulting negative impact on quality. However, we find are more likely to metropolitan statistical areas (MSAs) higher competition. The association statistically economically significant. Our finding positive...

SUMMARY: This study investigates whether auditor quality and audit committee expertise are associated with improved financial reporting timeliness as measured by the duration of a statement restatement's “dark period.” The restatement dark period represents length time between company's discovery that it will need to restate data subsequent disclosure effect on earnings. For sample restatements disclosed 2004 2009, we find companies engage Big 4 auditors have shorter periods than do not...

ABSTRACT This study examines the extent to which audit clients successfully engage in internal control opinion shopping activities and whether market competition appears facilitate those activities. Regulators have long been concerned about impact of both on quality. We adopt framework developed Lennox (2000) construct a proxy measure tendency that Our empirical results suggest are successful for clean opinions. In addition, we find evidence occurs primarily competitive markets. Finally, our...

SYNOPSIS We survey over 700 auditors about audit workloads and the relationship between workloads, perceived quality, job satisfaction. Our findings indicate that are working, on average, five hours per week above threshold at which they believe quality begins to deteriorate often 20 this peak of busy season. Survey respondents cite deadlines staffing shortages as two primary reasons for high further result in decreased quality. also find auditors' satisfaction is negatively impacted by...

In this paper we investigate the reputational penalties to managers of firms announcing earnings restatements. More specifically, examine management turnover and subsequent re-hiring displaced at restatements during 1997 or 1998. contrast prior research (Beneish 1999 Agrawal, Jaffe Karpoff, 1999), which does not find increased following GAAP violations revelation corporate fraud, that 60% restating experience a in least one top manager within 24 months restatement compared only 35% among...

ABSTRACT In this paper, we investigate how auditors respond to shareholder activism against their clients. Our study is important because may be viewed by as a source of increased engagement risk, thereby impacting audit outcomes. The potential relationship between and outcomes leads us predict that targets will pay higher fees also more likely receive adverse internal control opinions (ICOs) first‐time going concern (GCOs). results, which support all three predictions, suggest the public...

The purpose of this paper is to evaluate whether the expanded requirements SAS No. 59 (AICPA [1988]), which requires auditors actively and report on a client's going-concern status for coming year, have allowed investors make more accurate ex ante assessments firms that eventually file bankruptcy. We extend Chen Church [1996] (hereafter CC), who conclude 34 [19811) subject opinions information value because they reduce surprise associated with bankruptcy announcements. hypothesize if has...

detail concerning $1.2 billion.

In this study, we use a survey instrument to obtain perspectives from over 700 auditors about present-day audit workloads and the relationship between workloads, quality, job satisfaction. Our findings indicate that are working, on average, five hours per week above threshold at which they believe quality begins deteriorate often 20 peak of busy season. Survey respondents perceive deadlines staffing shortages as two primary reasons for high further result in decreased via compromised...

ABSTRACT We investigate how audit firms balance the tension between professional responsibility and client service by examining changes in partner assignments following adverse internal control opinions (ICOs). find that partners are significantly more likely to be reassigned when they issued an ICO any of their clients previous year. Further, issuing ICOs experience unfavorable portfolios form lower fees less prestigious assignments. consequences negative important local office there no...

SUMMARY Using a sample of public firm FCPA violations, we investigate how auditors respond to risk. We find that audit fees are higher for violators beginning in the violation period with an additional increase during which regulatory investigations occur. Fees exhibit greater sensitivity payables and SG&A expenses than non-violators, suggesting adapt their procedures accounts have highest likely also evidence contagion effect respect risk among non-violating peers violators. Finally,...

ABSTRACT Using proprietary data from a global accounting firm, we investigate the determinants of auditors' interim effort as well impact on audit quality, client disclosure timeliness, hours, and fees. Public statements firms regulators suggest various benefits accelerating auditor effort, but these claims remain largely untested. We find that is higher for large, complex clients require integrated audits both financial internal control over reporting. With respect to consequences,...

This paper examines IPO assurance fees to assess the use of industry specialization as a differentiation strategy by audit firms. Theory suggests that an firm's share client increases their costs will decrease and service quality increase. In this setting, impact on is indeterminate. We extend existing theory considering both supply demand for specialization. conclude market services generally price-competitive, suggesting auditors be forced cost savings with clients. However, when firm able...

SUMMARY In this study, we investigate the financial reporting behavior of chief officers (CFOs) with significant prior audit experience. Our tests indicate that, on average, CFOs who were former managers or partners report less aggressively than without Thus, mindset that auditors develop during their time in public accounting—which should value objective, transparent, and conservative reporting—appears to persist when take high-level positions industry. However, also find prior-auditor...