Do High-Quality Auditors Improve Non-GAAP Reporting?

Feng, Z; Francis, JR; Shan, Y; Taylor, SL

Do High-Quality Auditors Improve Non-GAAP Reporting?

Feng, Z Francis, JR Shan, Y

Taylor, SL

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Publisher:: American Accounting Association
Publication Type:: Journal Article
Citation:: The Accounting Review

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Field	Value	Language
dc.contributor.author	Feng, Z
dc.contributor.author	Francis, JR
dc.contributor.author	Shan, Y https://orcid.org/0000-0003-2156-8722
dc.contributor.author	Taylor, SL
dc.date.accessioned	2022-05-28T00:39:18Z
dc.date.available	2022-05-28T00:39:18Z
dc.identifier.citation	The Accounting Review
dc.identifier.issn	0001-4826
dc.identifier.issn	1558-7967
dc.identifier.uri	http://hdl.handle.net/10453/157780
dc.description.abstract	<jats:p>Prior research finds that clients of high-quality auditors report higher quality GAAP earnings. We extend this research to investigate whether auditor quality is associated with the quality of voluntarily disclosed non-GAAP earnings measures. Using a sample of Australian firms disclosing annual non-GAAP metrics, we find that clients of high-quality auditors are more likely to voluntarily disclose non-GAAP earnings numbers. However, clients of high-quality auditors make adjustments in calculating non-GAAP earnings (non-GAAP exclusions) that are less predictive of future earnings and less value relevant than those of other firms. These results indicate that their adjustments are of higher quality. We also find similar results for US firms using a sample of quarterly non-GAAP earnings disclosures. Overall, our evidence indicates that commonly used indicators of audit quality for GAAP reporting are positively associated with the quality of voluntarily disclosed non-GAAP earnings measures.</jats:p>
dc.language	en
dc.publisher	American Accounting Association
dc.relation	http://purl.org/au-research/grants/arc/DP180100388
dc.relation	Department of the Treasury
dc.relation	http://purl.org/au-research/grants/arc/DP210101354
dc.relation.ispartof	The Accounting Review
dc.relation.isbasedon	10.2308/tar-2019-0592
dc.rights	info:eu-repo/semantics/openAccess
dc.subject	1501 Accounting, Auditing and Accountability
dc.subject.classification	Accounting
dc.title	Do High-Quality Auditors Improve Non-GAAP Reporting?
dc.type	Journal Article
utslib.for	1501 Accounting, Auditing and Accountability
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	open_access	*
dc.date.updated	2022-05-28T00:39:17Z
pubs.publication-status	Published online

Abstract:

Prior research finds that clients of high-quality auditors report higher quality GAAP earnings. We extend this research to investigate whether auditor quality is associated with the quality of voluntarily disclosed non-GAAP earnings measures. Using a sample of Australian firms disclosing annual non-GAAP metrics, we find that clients of high-quality auditors are more likely to voluntarily disclose non-GAAP earnings numbers. However, clients of high-quality auditors make adjustments in calculating non-GAAP earnings (non-GAAP exclusions) that are less predictive of future earnings and less value relevant than those of other firms. These results indicate that their adjustments are of higher quality. We also find similar results for US firms using a sample of quarterly non-GAAP earnings disclosures. Overall, our evidence indicates that commonly used indicators of audit quality for GAAP reporting are positively associated with the quality of voluntarily disclosed non-GAAP earnings measures.

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http://hdl.handle.net/10453/157780