Pub Date : 2024-06-01DOI: 10.2308/horizons-2021-161
Mayer Chunzi Liang, Thomas J. Linsmeier
We evaluate whether current capital expenditures (capex) reporting in the cash flows statement can be improved via disaggregation and/or reclassification of some capex as operating activities. FASB Concept Statement No. 5 suggests recurrence and risk as useful characteristics for determining disaggregation and classification in financial statements. Using a novel German dataset that provides disaggregated capex information, we examine whether these characteristics differ across capex components and provide evidence of up to five economically distinct components. These results support disaggregating capex into maintenance, expansion, rationalization, restructuring, and environmental components. Our findings, however, do not support reclassifying any capex component as operating activities, although evidence suggests capex and capex components are misclassified as investing activities. As a first step toward improving capex reporting guidance, our evidence suggests standard setters consider disaggregating and presenting capex components as supplemental information in the cash flow statement, the footnotes, or MD&A. Data Availability: FactSet data are publicly available. The disaggregated capital expenditures data are available from the ifo Institute. JEL Classifications: G31; M41; M48.
{"title":"Can Standard Setters Improve Cash Flow Reporting of Capital Expenditures?","authors":"Mayer Chunzi Liang, Thomas J. Linsmeier","doi":"10.2308/horizons-2021-161","DOIUrl":"https://doi.org/10.2308/horizons-2021-161","url":null,"abstract":"\u0000 We evaluate whether current capital expenditures (capex) reporting in the cash flows statement can be improved via disaggregation and/or reclassification of some capex as operating activities. FASB Concept Statement No. 5 suggests recurrence and risk as useful characteristics for determining disaggregation and classification in financial statements. Using a novel German dataset that provides disaggregated capex information, we examine whether these characteristics differ across capex components and provide evidence of up to five economically distinct components. These results support disaggregating capex into maintenance, expansion, rationalization, restructuring, and environmental components. Our findings, however, do not support reclassifying any capex component as operating activities, although evidence suggests capex and capex components are misclassified as investing activities. As a first step toward improving capex reporting guidance, our evidence suggests standard setters consider disaggregating and presenting capex components as supplemental information in the cash flow statement, the footnotes, or MD&A.\u0000 Data Availability: FactSet data are publicly available. The disaggregated capital expenditures data are available from the ifo Institute.\u0000 JEL Classifications: G31; M41; M48.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141401016","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-06-01DOI: 10.2308/horizons-2023-066
Zhongwei Huang, L. Enache, Rucsandra Moldovan, Anup Srivastava
Although much research focuses on informational benefits of new accounting standards, the costs of implementing them remain largely unexamined. We consider one such cost in the adoption of two recent standards: lease accounting and revenue recognition. We find an increase in the number of job postings demanding skills related to accounting for those standards around their issuance. Firms most affected by new standards, measured by accounting complexity and early adoption behavior, post more accounting jobs. Using job postings as a proxy for hiring, we estimate incremental labor costs at about 30 percent of median audit fees for each standard for the most affected firms. Our tests indicate greater regulatory compliance burden for smaller firms. We provide large-sample evidence on the lower bound for the costs of implementing new accounting standards. Our findings should interest standard setters as they evaluate the cost-benefit tradeoffs of issuing new standards. Data Availability: Data are commercially available from the sources cited in the text. JEL Classifications: J23; M41; M51.
{"title":"Labor Costs of Implementing New Accounting Standards","authors":"Zhongwei Huang, L. Enache, Rucsandra Moldovan, Anup Srivastava","doi":"10.2308/horizons-2023-066","DOIUrl":"https://doi.org/10.2308/horizons-2023-066","url":null,"abstract":"\u0000 Although much research focuses on informational benefits of new accounting standards, the costs of implementing them remain largely unexamined. We consider one such cost in the adoption of two recent standards: lease accounting and revenue recognition. We find an increase in the number of job postings demanding skills related to accounting for those standards around their issuance. Firms most affected by new standards, measured by accounting complexity and early adoption behavior, post more accounting jobs. Using job postings as a proxy for hiring, we estimate incremental labor costs at about 30 percent of median audit fees for each standard for the most affected firms. Our tests indicate greater regulatory compliance burden for smaller firms. We provide large-sample evidence on the lower bound for the costs of implementing new accounting standards. Our findings should interest standard setters as they evaluate the cost-benefit tradeoffs of issuing new standards.\u0000 Data Availability: Data are commercially available from the sources cited in the text.\u0000 JEL Classifications: J23; M41; M51.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141402749","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-06-01DOI: 10.2308/horizons-2023-060
Marc Eulerich, B. Fligge, V. I. Lopez Kasper, David A. Wood
Despite research showing numerous benefits of continuous auditing, uptake by internal audit functions has been quite slow. Using a case study approach and field data from a multinational company, we study two possible reasons for the slow uptake of continuous auditing: (1) the time it takes for continuous auditing to result in measurable reductions in audit risks and (2) that not every type of risk is equally likely to improve from continuous auditing. In our case company, it takes three years (on average) before observing significant risk reductions from implementing continuous auditing. We also find that the benefits of implementing continuous auditing vary by risk factor, ranging from no improvement to 51.6 percent for each additional year of continuous auditing use. These findings can provide internal auditors with a realistic expectation of the benefits and limitations, as well as the timetable for realizing benefits, when adopting continuous auditing. Data Availability: The data used in this study cannot be made publicly available due to confidentiality agreements with the participating organization. JEL Classifications: M42; G32.
{"title":"Patience is Key: The Time It Takes to See Benefits from Continuous Auditing","authors":"Marc Eulerich, B. Fligge, V. I. Lopez Kasper, David A. Wood","doi":"10.2308/horizons-2023-060","DOIUrl":"https://doi.org/10.2308/horizons-2023-060","url":null,"abstract":"\u0000 Despite research showing numerous benefits of continuous auditing, uptake by internal audit functions has been quite slow. Using a case study approach and field data from a multinational company, we study two possible reasons for the slow uptake of continuous auditing: (1) the time it takes for continuous auditing to result in measurable reductions in audit risks and (2) that not every type of risk is equally likely to improve from continuous auditing. In our case company, it takes three years (on average) before observing significant risk reductions from implementing continuous auditing. We also find that the benefits of implementing continuous auditing vary by risk factor, ranging from no improvement to 51.6 percent for each additional year of continuous auditing use. These findings can provide internal auditors with a realistic expectation of the benefits and limitations, as well as the timetable for realizing benefits, when adopting continuous auditing.\u0000 Data Availability: The data used in this study cannot be made publicly available due to confidentiality agreements with the participating organization.\u0000 JEL Classifications: M42; G32.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141408490","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-05-01DOI: 10.2308/horizons-2023-070
Dennis van Liempd, Jochen C. Theis, Steve G. Sutton
Accounting firms continue to develop digital decision aids (DDAs) that reinforce consistent use of firms’ audit methodology and provide assurance for meeting regulator expectations. Firms actively promote use and reliance on DDAs, but relying on such systems risks over-reliance, impacting decision quality and heightening technology dominance. Surveying 725 Danish auditors, we sought to determine the level of reliance practicing auditors have on DDAs and understand how auditors experience these potentially deleterious effects in the field. Results show auditors rely more on DDAs when auditors are inexperienced, task complexity is high, there is familiarity with the DDA, and/or there is cognitive congruence. Junior auditors rely significantly more on DDAs than senior auditors, whereas auditors indicating low usage rely significantly less on DDAs. Overall, senior auditors and auditors not heavily using DDAs have deskilling concerns and are less positive on junior auditors’ as well as the profession’s skill development when using DDAs. JEL Classifications: M15; M41; M42.
{"title":"The Risk of Technology Dominance in Using Digital Decision Aids in Assurance Engagements—Evidence from a Survey among Danish Auditors","authors":"Dennis van Liempd, Jochen C. Theis, Steve G. Sutton","doi":"10.2308/horizons-2023-070","DOIUrl":"https://doi.org/10.2308/horizons-2023-070","url":null,"abstract":"\u0000 Accounting firms continue to develop digital decision aids (DDAs) that reinforce consistent use of firms’ audit methodology and provide assurance for meeting regulator expectations. Firms actively promote use and reliance on DDAs, but relying on such systems risks over-reliance, impacting decision quality and heightening technology dominance. Surveying 725 Danish auditors, we sought to determine the level of reliance practicing auditors have on DDAs and understand how auditors experience these potentially deleterious effects in the field. Results show auditors rely more on DDAs when auditors are inexperienced, task complexity is high, there is familiarity with the DDA, and/or there is cognitive congruence. Junior auditors rely significantly more on DDAs than senior auditors, whereas auditors indicating low usage rely significantly less on DDAs. Overall, senior auditors and auditors not heavily using DDAs have deskilling concerns and are less positive on junior auditors’ as well as the profession’s skill development when using DDAs.\u0000 JEL Classifications: M15; M41; M42.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141134136","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-01DOI: 10.2308/horizons-2024-037
Stephen Moehrle, Martin E. Persson
G. Peter Wilson, most recently on the faculty at Boston College, was a consummate academic and leader. He profoundly influenced accounting research and the art and science of accounting instruction. He also advanced the accounting academy through his various leadership roles at the American Accounting Association. This memorial article documents Wilson’s early upbringing, academic career, professional activities, and achievements. The overarching themes are love and impact. Wilson loved life, loved his work, and above all, loved his family, friends, students, and colleagues. As a result, he profoundly impacted each aspect of the academy—research, teaching, and service. Indeed, his impact continues through the undergraduate and master students he inspired, the doctoral students he mentored at various universities and consortia, the colleagues he collaborated with, and the many who continue to learn from his innovations. This article sets forth the most significant impacts to preserve the past and inspire future generations. JEL Classifications: M41; M42; M48.
彼得-威尔逊（G. Peter Wilson）最近在波士顿学院任教，他是一位完美的学者和领导者。他对会计研究以及会计教学的艺术和科学产生了深远的影响。他还通过在美国会计协会担任各种领导职务，推动了会计学术的发展。这篇纪念文章记录了威尔逊的早期成长经历、学术生涯、职业活动和成就。其中最重要的主题是 "爱 "和 "影响"。威尔逊热爱生活，热爱工作，尤其热爱他的家人、朋友、学生和同事。因此，他对学术研究、教学和服务的各个方面都产生了深远的影响。事实上，他的影响通过他启发的本科生和硕士生、他在不同大学和联盟指导的博士生、与他合作的同事以及许多继续从他的创新中学习的人得以延续。本文阐述了他最重要的影响，以留住过去，激励后人。JEL 分类：M41; M42; M48.
{"title":"Gordon Peter Wilson (1946–2020): Teacher, Mentor, Scholar, and Friend","authors":"Stephen Moehrle, Martin E. Persson","doi":"10.2308/horizons-2024-037","DOIUrl":"https://doi.org/10.2308/horizons-2024-037","url":null,"abstract":"\u0000 G. Peter Wilson, most recently on the faculty at Boston College, was a consummate academic and leader. He profoundly influenced accounting research and the art and science of accounting instruction. He also advanced the accounting academy through his various leadership roles at the American Accounting Association. This memorial article documents Wilson’s early upbringing, academic career, professional activities, and achievements. The overarching themes are love and impact. Wilson loved life, loved his work, and above all, loved his family, friends, students, and colleagues. As a result, he profoundly impacted each aspect of the academy—research, teaching, and service. Indeed, his impact continues through the undergraduate and master students he inspired, the doctoral students he mentored at various universities and consortia, the colleagues he collaborated with, and the many who continue to learn from his innovations. This article sets forth the most significant impacts to preserve the past and inspire future generations.\u0000 JEL Classifications: M41; M42; M48.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140789315","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-01DOI: 10.2308/horizons-2023-088
Patricia Navarro, Steve G. Sutton
As the associated costs, business impacts, and high variability of cybersecurity disclosures capture the attention of regulators, we are witnessing a rapid emergence of proposals for new reporting requirements, such as recent SEC proposed disclosure guidelines and legislation being passed in both the EU and U.S. Within the context of cyber-breach disclosure, this study investigates how voluntary assurance provided by professional accounting firms affects nonprofessional investors’ judgments and decisions after the disclosure of a cybersecurity breach—an inevitable event. The study also examines how value relevance of voluntary assurance is altered when having such assurance is expected/unexpected given the company’s industry. We find expectancy violations, based on industry norms and investors’ perceived benefits of voluntary assurance, significantly influence investors’ judgments. This study begins to address questions on whether demand exists for voluntary assurance provided by professional accounting firms, particularly given lingering concerns over the viability of new forms of assurance. Data Availability: Data are available from the authors upon request. JEL Classifications: M41; M42; O31; O33.
{"title":"Leveraging Emerging Cybersecurity Reporting Regulations: The Effect of Industry Driven Expectations for Voluntary Assurance","authors":"Patricia Navarro, Steve G. Sutton","doi":"10.2308/horizons-2023-088","DOIUrl":"https://doi.org/10.2308/horizons-2023-088","url":null,"abstract":"\u0000 As the associated costs, business impacts, and high variability of cybersecurity disclosures capture the attention of regulators, we are witnessing a rapid emergence of proposals for new reporting requirements, such as recent SEC proposed disclosure guidelines and legislation being passed in both the EU and U.S. Within the context of cyber-breach disclosure, this study investigates how voluntary assurance provided by professional accounting firms affects nonprofessional investors’ judgments and decisions after the disclosure of a cybersecurity breach—an inevitable event. The study also examines how value relevance of voluntary assurance is altered when having such assurance is expected/unexpected given the company’s industry. We find expectancy violations, based on industry norms and investors’ perceived benefits of voluntary assurance, significantly influence investors’ judgments. This study begins to address questions on whether demand exists for voluntary assurance provided by professional accounting firms, particularly given lingering concerns over the viability of new forms of assurance.\u0000 Data Availability: Data are available from the authors upon request.\u0000 JEL Classifications: M41; M42; O31; O33.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140786644","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-03-01DOI: 10.2308/horizons-2020-098
Ryan V. Hess, Lillian F. Mills
We examine whether, and to what extent, government economic assistance is associated with future firm leverage. We use novel data from public records to provide evidence on a distinct impact of government assistance on firm capital structure. Using a two-stage selection model and entropy balancing, we find that both the receipt and magnitude of government assistance are strongly associated with lower future measures of leverage. Further, we find only direct government assistance, such as cash grants, but not tax relief or loans is negatively associated with firm leverage. Also, we show government assistance often creates corporate obligations, but commonly, neither the assistance nor the obligations are disclosed under the new Financial Accounting Standards Board (FASB) Standard ASU 2021-10 that mandates disclosure of government assistance. JEL Classifications: H81; M41; M48.
{"title":"Government Assistance: A Growing, Underdisclosed Financing Source","authors":"Ryan V. Hess, Lillian F. Mills","doi":"10.2308/horizons-2020-098","DOIUrl":"https://doi.org/10.2308/horizons-2020-098","url":null,"abstract":"\u0000 We examine whether, and to what extent, government economic assistance is associated with future firm leverage. We use novel data from public records to provide evidence on a distinct impact of government assistance on firm capital structure. Using a two-stage selection model and entropy balancing, we find that both the receipt and magnitude of government assistance are strongly associated with lower future measures of leverage. Further, we find only direct government assistance, such as cash grants, but not tax relief or loans is negatively associated with firm leverage. Also, we show government assistance often creates corporate obligations, but commonly, neither the assistance nor the obligations are disclosed under the new Financial Accounting Standards Board (FASB) Standard ASU 2021-10 that mandates disclosure of government assistance.\u0000 JEL Classifications: H81; M41; M48.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140403603","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-03-01DOI: 10.2308/horizons-2022-188
Brooke D. Beyer, Binod Guragai, Eric T. Rapley
The Public Company Accounting Oversight Board (PCAOB) Auditing Standard (AS) 3101 requires auditor’s reports to include the communication of critical audit matters (CAMs). This study investigates the recurrence of CAM topics following the standard’s implementation to determine which CAM topics could be considered recurring, nonrecurring, and intermittent. We provide descriptive evidence that the average number of CAMs reported by auditors decreased over the first three years and then show occurrence patterns for CAM topics during our sample period (June 2019 to June 2022). Using the occurrence rates and the PCAOB’s descriptions in the CAM implementation guidance, we propose a method for classifying CAM topics as recurring, nonrecurring, and intermittent. Based on our proposed CAM topic recurrence categorization, we find that approximately 68 percent of auditor’s reports include at least one recurring CAM topic. Our findings should help practitioners and other financial reporting stakeholders refine expectations for the recurrence of CAMs. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M42; M48.
{"title":"Critical Audit Matters: Recurring, Nonrecurring, and Intermittent","authors":"Brooke D. Beyer, Binod Guragai, Eric T. Rapley","doi":"10.2308/horizons-2022-188","DOIUrl":"https://doi.org/10.2308/horizons-2022-188","url":null,"abstract":"\u0000 The Public Company Accounting Oversight Board (PCAOB) Auditing Standard (AS) 3101 requires auditor’s reports to include the communication of critical audit matters (CAMs). This study investigates the recurrence of CAM topics following the standard’s implementation to determine which CAM topics could be considered recurring, nonrecurring, and intermittent. We provide descriptive evidence that the average number of CAMs reported by auditors decreased over the first three years and then show occurrence patterns for CAM topics during our sample period (June 2019 to June 2022). Using the occurrence rates and the PCAOB’s descriptions in the CAM implementation guidance, we propose a method for classifying CAM topics as recurring, nonrecurring, and intermittent. Based on our proposed CAM topic recurrence categorization, we find that approximately 68 percent of auditor’s reports include at least one recurring CAM topic. Our findings should help practitioners and other financial reporting stakeholders refine expectations for the recurrence of CAMs.\u0000 Data Availability: Data are available from the public sources cited in the text.\u0000 JEL Classifications: M42; M48.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140403296","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-03-01DOI: 10.2308/horizons-2019-520
Patricia Wellmeyer, Morton Pincus, Lijie Yao
Expanded audit report regulation in the United Kingdom requires auditor disclosure of client-specific quantitative materiality thresholds (QMTs). The United States decided against requiring this disclosure, concerned that providing clients with visibility into this important audit input could enhance managers’ ability to manage earnings without detection. Using the U.K. setting, we investigate whether clients strategically leverage their auditors’ QMTs to increase income through undetected earnings management. We examine the association between auditor QMT and client earnings management generally and in client settings where a material qualitative factor in the form of heightened earnings management incentives exists. In our general setting, we find a positive relation between auditors’ lagged and current QMTs and clients’ current-year accruals-based earnings management. We do not find a relation in our heightened earnings management settings, however, suggesting that auditors consider qualitative materiality factors and constrain clients’ auditor QMT-based earnings management. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M42; M48.
{"title":"Do Client Managers Strategically Manage Earnings in Response to Auditors’ Quantitative Materiality Threshold Disclosures?","authors":"Patricia Wellmeyer, Morton Pincus, Lijie Yao","doi":"10.2308/horizons-2019-520","DOIUrl":"https://doi.org/10.2308/horizons-2019-520","url":null,"abstract":"\u0000 Expanded audit report regulation in the United Kingdom requires auditor disclosure of client-specific quantitative materiality thresholds (QMTs). The United States decided against requiring this disclosure, concerned that providing clients with visibility into this important audit input could enhance managers’ ability to manage earnings without detection. Using the U.K. setting, we investigate whether clients strategically leverage their auditors’ QMTs to increase income through undetected earnings management. We examine the association between auditor QMT and client earnings management generally and in client settings where a material qualitative factor in the form of heightened earnings management incentives exists. In our general setting, we find a positive relation between auditors’ lagged and current QMTs and clients’ current-year accruals-based earnings management. We do not find a relation in our heightened earnings management settings, however, suggesting that auditors consider qualitative materiality factors and constrain clients’ auditor QMT-based earnings management.\u0000 Data Availability: Data are available from the public sources cited in the text.\u0000 JEL Classifications: M41; M42; M48.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140268232","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-03-01DOI: 10.2308/horizons-2023-106
Min Park
This paper investigates the impact of analyst/investor days on hosting firms’ information environments. The event allows for human interaction and information exchange among participants. Using hand-collected data, I document the impact of analyst/investor days on the hosting firms’ information environments in two different periods: an immediate effect around the time of the event and a persisting effect around future earnings announcements. First, I show that the inaccuracy of analysts’ forecasts for various forecast horizons significantly decreases around the event. Second, I find evidence that analyst/investor days decrease information asymmetry and improve analyst forecast quality around future earnings announcements. This result suggests that the information effects persist into the future and help investors and analysts better interpret future earnings releases. Overall, this study documents the forward-looking and multidimensional nature of information disclosed at analyst/investor days in the context of sequential disclosures. JEL Classifications: M41; G14; G24; G32.
{"title":"Analyst/Investor Days and Firms’ Information Environments","authors":"Min Park","doi":"10.2308/horizons-2023-106","DOIUrl":"https://doi.org/10.2308/horizons-2023-106","url":null,"abstract":"\u0000 This paper investigates the impact of analyst/investor days on hosting firms’ information environments. The event allows for human interaction and information exchange among participants. Using hand-collected data, I document the impact of analyst/investor days on the hosting firms’ information environments in two different periods: an immediate effect around the time of the event and a persisting effect around future earnings announcements. First, I show that the inaccuracy of analysts’ forecasts for various forecast horizons significantly decreases around the event. Second, I find evidence that analyst/investor days decrease information asymmetry and improve analyst forecast quality around future earnings announcements. This result suggests that the information effects persist into the future and help investors and analysts better interpret future earnings releases. Overall, this study documents the forward-looking and multidimensional nature of information disclosed at analyst/investor days in the context of sequential disclosures.\u0000 JEL Classifications: M41; G14; G24; G32.","PeriodicalId":51419,"journal":{"name":"Accounting Horizons","volume":null,"pages":null},"PeriodicalIF":2.5,"publicationDate":"2024-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140276148","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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