Auditor conservatism and audit quality: Evidence from IPO earnings forecasts

Lee, PJ; Taylor, SB; Taylor, SL

Auditor conservatism and audit quality: Evidence from IPO earnings forecasts

Lee, PJ Taylor, SB Taylor, SL

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Publisher:: Wiley-Blackwell Publishing Ltd.
Publication Type:: Journal Article
Citation:: International Journal of Auditing, 2006, 10 (3), pp. 183 - 199
Issue Date:: 2006-01

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Field	Value	Language
dc.contributor.author	Lee, PJ	en_US
dc.contributor.author	Taylor, SB	en_US
dc.contributor.author	Taylor, SL https://orcid.org/0000-0001-8870-4966	en_US
dc.date.issued	2006-01	en_US
dc.identifier.citation	International Journal of Auditing, 2006, 10 (3), pp. 183 - 199	en_US
dc.identifier.issn	1090-6738	en_US
dc.identifier.uri	http://hdl.handle.net/10453/10236
dc.description.abstract	We investigate the relation between a proxy for differential audit quality and both the (ex post) accuracy and conservatism of audited earnings forecasts provided in Australian initial public offering (IPO) prospectuses. For the period we examine, most Australian IPO prospectuses include an earnings forecast (i.e., disclosure is not 'voluntary'), and the auditor must be satisfied prior to signing off on the prospectus. After controlling for other factors associated with forecast error, there is some evidence that forecasts audited by Big 6 auditors prove more accurate than those audited by a non-Big 6 auditor, although this result is not robust across alternative measures of forecast accuracy. In contrast, our finding of significantly less optimistic bias for forecasts associated with Big 6 auditors is robust to alternative measures of forecast bias. We interpret these results as being consistent with the argument that the economic demand for differential audit quality reflects the same factors that underlie the demand for conservative financial reporting	en_US
dc.publisher	Wiley-Blackwell Publishing Ltd.	en_US
dc.relation.ispartof	International Journal of Auditing	en_US
dc.title	Auditor conservatism and audit quality: Evidence from IPO earnings forecasts	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	10	en_US
utslib.for	150103 Financial Accounting	en_US
utslib.for	1501 Accounting, Auditing and Accountability	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Accounting Discipline
pubs.organisational-group	/University of Technology Sydney/Faculty of Engineering and Information Technology
utslib.copyright.status	closed_access
pubs.consider-herdc	false	en_US
pubs.issue	3	en_US
pubs.volume	10	en_US

Abstract:

We investigate the relation between a proxy for differential audit quality and both the (ex post) accuracy and conservatism of audited earnings forecasts provided in Australian initial public offering (IPO) prospectuses. For the period we examine, most Australian IPO prospectuses include an earnings forecast (i.e., disclosure is not 'voluntary'), and the auditor must be satisfied prior to signing off on the prospectus. After controlling for other factors associated with forecast error, there is some evidence that forecasts audited by Big 6 auditors prove more accurate than those audited by a non-Big 6 auditor, although this result is not robust across alternative measures of forecast accuracy. In contrast, our finding of significantly less optimistic bias for forecasts associated with Big 6 auditors is robust to alternative measures of forecast bias. We interpret these results as being consistent with the argument that the economic demand for differential audit quality reflects the same factors that underlie the demand for conservative financial reporting

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http://hdl.handle.net/10453/10236