Effects of Increasing Enforcement on Financial Reporting Quality and Audit Quality

• 成果类型: Article
• 署名作者: Ewert, Ralf; Wagenhofer, Alfred
• 署名单位: University of Graz
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12251
• 发表日期: 2019
• 页码: 121-168
• 关键词: accounting standards; LEGAL LIABILITY; earnings; conservatism

摘要

A widely held assumption in policy making and empirical research is that increasing the strength of public enforcement improves financial reporting quality and audit quality. This paper provides a more nuanced view. In a model with a manager who can manage earnings, a strategic auditor, and an enforcement institution, we show that enforcement and auditing are complements in a weak enforcement regime but can be substitutes in a strong regime. Although stronger enforcement always mitigates earnings management, the effects of different instruments of strengthening enforcement are ambiguous. We show that they can improve or impair financial reporting quality and audit quality, depending on production risk, accounting system characteristics, and the scope of auditing relative to enforcement.