Awareness of SEC Enforcement and Auditor Reporting Decisions

• 成果类型: Article
• 署名作者: Defond, Mark L.; Francis, Jere R.; Hallman, Nicholas J.
• 署名单位: University of Southern California; University of Missouri System; University of Missouri Columbia; University of Technology Sydney; University of Texas System; University of Texas Austin
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12352
• 发表日期: 2018
• 页码: 277-313
• 关键词: geographic proximity; office size; INFORMATION; LITIGATION; Reputations; heuristics; attention; earnings; QUALITY; fees

摘要

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.