Evidence on the Association Between Financial Restatements and Auditor Resignations PDF Download

Author: Ying (Julie) Huang
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
Financial restatements have significant implications for auditor-client relationships. We estimate that a restatement increases the odds of an auditor resignation dramatically. Restatements involving fraud, reversing profit to loss and those disclosed in press releases appear to drive the increased resignation likelihood. Further, companies with relatively severe restatements are more likely to hire smaller auditors following a resignation. Collectively, these results are consistent with auditors interpreting restatements as an indication of increased client risk.

Author: Kannan Raghunandan
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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An increasing number of firms have restated previously issued financial statements in recent years. Legislators, regulators, and others speculate that restatements are associated with fees received by auditors for non-audit services (non-audit fees). The current study provides empirical evidence about the association between firms that restate financial statements and the non-audit service fees received by incumbent auditors during reporting periods that required restatement. We identify a sample of 110 firms that restated financial statements previously filed with the SEC for fiscal years 2000 or 2001, and provided relevant audit and non-audit fee data. We compare the fees paid by the restatement sample with fee data for 3,481 firms that filed proxies with the SEC from February 5, 2001 to August 31, 2001 and develop benchmarks for expected non-audit fees, fee ratio, and total fees. Using these benchmarks, we calculate the unexpected values for these measures and investigate whether restatement firms differ from the control firms. Our findings of no significant differences between the restatement and control samples for unexpected non-audit fees, fee ratios, and total fees do not support concerns that either non-audit fees or total fees inappropriately influence the audit and lead to restatements.

Author: Yu-Ho Chi
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 198

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Book Description
Restatements are serious corporate reporting failures which cause investors' concerns about the credibility of restated firms' financial reporting environment. As a result, restatements are usually followed by auditor turnovers, manager turnovers and disclosures of internal control problems. This study attempts to provide empirical evidence on the associations between the reoccurrence of financial restatements and auditor turnover/choice (Big 4/non-Big 4), management replacement (CEO/CFO), and improvement of internal controls. This study also investigates the associations of restated firms' stock market performance with the role of auditor choice, management turnover and improvement of internal controls. Using a sample of 460 earnings restatements reported in the years of 2003 and 2004 with 282 firms with no reoccurrence of financial restatement in the subsequent three years and 178 firms with at least one financial restatement in the subsequent three-year period, my findings show a negative relationship between the probability of reoccurrence of firms' financial restatements and (1) the change to a Big 4 auditor, (2) replacement of CEO/CFO, and (3) improvement on internal controls. Moreover, I find better stock market performance of non-reoccurrence firms compared with that of reoccurrence firms over a three-year period after the initial restatement. Furthermore, the stock market performance is found to be positively associated with the change to a Big 4 auditor, replacement of CEO/CFO and improvement on internal controls.-- Abstract.

Author:
Publisher: ScholarlyEditions
ISBN: 1490108351
Category : Business & Economics
Languages : en
Pages : 242

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Book Description
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/.

Author: Gerald J. Lobo
Publisher:
ISBN:
Category :
Languages : en
Pages : 39

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Book Description
We identify two research design issues that explain the inconsistency between the theoretically predicted negative relation between audit effort and misstatements (measured using restatements) and empirical findings. First, auditor risk adjustment behavior induces an upward bias in the association between audit effort and restatements. Second, the theoretical prediction applies only to audited financial reports (i.e., annual reports) and not to unaudited reports (i.e., interim quarterly reports). Comingling restatements of audited with unaudited reports introduces an additional upward bias in the association between audit effort and restatements. After correcting for these two sources of bias, we find a robust negative association between audit effort and annual report restatements.

Author: Donna Bobek Schmitt
Publisher: Emerald Group Publishing
ISBN: 1781908397
Category : Business & Economics
Languages : en
Pages : 279

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Book Description
Advances in Accounting Behavioral Research publishes high-quality research encompassing all areas of accounting and addressing a broad range of issues that affect the users, preparers, and assurers of accounting information. Further, this research incorporates theory from, and contributes knowledge and understanding to, applied psychology, sociolog

Author: Tom Adams
Publisher:
ISBN:
Category :
Languages : en
Pages : 48

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Book Description
Financial scandals such as those surrounding the Enron-Andersen debacle provoke concerns that auditors lack independence when faced with influential clients, and are unwilling to respond to client risks by resigning. Unlike previous studies that examine whether client influence affects audit quality on ongoing engagements (and provide mixed results), we investigate whether office-level client influence affects auditor resignations from risky clients for whom the resignation decision is most salient. Using a sample of risky clients, we find that (1) auditors are more likely on average to resign from influential clients, and (2) this positive association holds for non-Big N auditors, auditors in smaller offices, and non-specialist auditors. We speculate that audit firms or audit offices that have inadequate mechanisms to mitigate independence risk use resignation as a tool to counter such risk. This is consistent with the suggestions offered in professional guidance. Also, importantly, the effect of client influence is distinct from that of client size. Influential clients are prevalent across the spectrum of absolute client size, and the positive association between client influence and auditor resignations occurs for both large and small clients.

Author: Ying Cao
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Book Description
In this study, we explore the association between company reputation and the likelihood of a financial statement restatement (i.e., a revealed misstatement). We focus on restatements because they are one of the most visible forms of impaired financial reporting quality, and we suggest that company reputation concerns will influence the reporting process and reduce financial statement misstatements (and ultimately restatements). We proxy for company reputation using measures based on Fortune's America's Most Admired Companies List. For a sample of 8,081 observations from 1995 through 2009, we find that companies with higher reputation scores are less likely to misstate their financial statements after controlling for CEO tenure, corporate governance, and audit fees (a proxy for audit effort). In addition, we find that companies with higher reputations have better accruals quality. We also find that company reputation is positively associated with audit fees even after controlling for corporate governance. These results are consistent with company reputation having an important effect on financial reporting quality and with the effect of reputation being distinct from that of corporate governance.

Author: Bradley Pomeroy
Publisher:
ISBN:
Category :
Languages : en
Pages : 38

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We conduct a meta-analysis of the association between audit committee (AC) independence and financial reporting quality (FRQ). Although we cannot reliably aggregate results across studies in a statistical sense because of inconsistencies in defining FRQ and the absence of replication studies, quantitative review techniques yield three conclusions: (1) The use of different FRQ measures in the AC independence literature explains about half of the variation in results across studies. (2) Audit committees are more effective at enhancing audit quality (e.g., through averting going-concern reports and auditor resignations) than they are at fostering financial statement quality (e.g., by making high-quality accruals and avoiding restatements). AC independence can even reduce apparent financial statement quality by identifying the need for restatements and remedial, abnormal accruals. (3) Financial statement quality and audit quality are complementary contributors to FRQ. The statistical and methodological difficulties we encounter lead us to posit that the dearth of MA studies in accounting and auditing stems from similar difficulties in applying MA to other topics. We present evidence consistent with publication biases and perverse researcher incentives being responsible for the difficulties.

Author: Samirah Saleh M. Almutairi
Publisher:
ISBN:
Category :
Languages : en
Pages :

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