Awareness of SEC Enforcement and Auditor Reporting Decisions

Defond, ML; Francis, JR; Hallman, NJ

Awareness of SEC Enforcement and Auditor Reporting Decisions

Defond, ML Francis, JR Hallman, NJ

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Publication Type:: Journal Article
Citation:: Contemporary Accounting Research, 2018, 35 (1), pp. 277 - 313
Issue Date:: 2018-03-01

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Field	Value	Language
dc.contributor.author	Defond, ML	en_US
dc.contributor.author	Francis, JR	en_US
dc.contributor.author	Hallman, NJ	en_US
dc.date.issued	2018-03-01	en_US
dc.identifier.citation	Contemporary Accounting Research, 2018, 35 (1), pp. 277 - 313	en_US
dc.identifier.issn	0823-9150	en_US
dc.identifier.uri	http://hdl.handle.net/10453/129991
dc.description.abstract	© CAAA We find that non-Big 4 audit offices with greater awareness of SEC enforcement are more likely to issue first-time going-concern reports to distressed clients; where SEC “awareness” is measured using (i) audit office proximity to SEC regional offices, and (ii) proximity to specific SEC enforcement actions against auditors. We also show that these non-Big 4 audit offices issue more going-concern opinions to clients who do not subsequently fail, indicating a conservative bias that reduces the informativeness of audit reports. This conservative reporting bias is also associated with higher audit fees and higher auditor switching rates. These findings are important because non-Big 4 firms now audit 39 percent of SEC registrants and issue 88 percent of going-concern audit reports. For Big 4 offices, we find some evidence that awareness of SEC enforcement may improve reporting accuracy by reducing Type II errors (failing to issue a going-concern report to a company that fails), although the number of cases is small.	en_US
dc.relation.ispartof	Contemporary Accounting Research	en_US
dc.relation.isbasedon	10.1111/1911-3846.12352	en_US
dc.subject.classification	Accounting	en_US
dc.title	Awareness of SEC Enforcement and Auditor Reporting Decisions	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	35	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
utslib.copyright.status	closed_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	35	en_US

Abstract:

© CAAA We find that non-Big 4 audit offices with greater awareness of SEC enforcement are more likely to issue first-time going-concern reports to distressed clients; where SEC “awareness” is measured using (i) audit office proximity to SEC regional offices, and (ii) proximity to specific SEC enforcement actions against auditors. We also show that these non-Big 4 audit offices issue more going-concern opinions to clients who do not subsequently fail, indicating a conservative bias that reduces the informativeness of audit reports. This conservative reporting bias is also associated with higher audit fees and higher auditor switching rates. These findings are important because non-Big 4 firms now audit 39 percent of SEC registrants and issue 88 percent of going-concern audit reports. For Big 4 offices, we find some evidence that awareness of SEC enforcement may improve reporting accuracy by reducing Type II errors (failing to issue a going-concern report to a company that fails), although the number of cases is small.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/129991