Reliance on External Assurance in Regulatory Monitoring

• 成果类型: Article
• 署名作者: Gopalan, Yadav K.; Imdieke, Andrew J.; Schroeder, Joseph H.; Stuber, Sarah B.
• 署名单位: Indiana University System; IU Kelley School of Business; Indiana University Bloomington; Federal Reserve System - USA; Federal Reserve Bank - St. Louis; University of Notre Dame; Texas A&M University System; Texas A&M University College Station; Mays Business School
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2021-0658
• 发表日期: 2024
• 页码: 201-224
• 关键词: fdicia internal controls; BANK; Auditors

摘要

We exploit a regulatory change to examine whether bank regulator strictness is affected when regulators no longer rely on external assurance. In the absence of external assurance, we find that banks report higher nonaccrual loans, higher troubled debt restructurings, and both a timelier loan loss provision and higher quality allowance for loan loss reserve. Further, regulators spend more days performing targeted bank examinations for banks affected by the regulatory change. We do not find evidence of operational deterioration, but rather the findings are consistent with increased regulator strictness over the reporting of problem assets, particularly during targeted examinations. Overall, our results suggest that regulators become stricter when they can no longer rely on the work of external auditors and that third -party assurance is an imperfect substitute for direct regulatory monitoring.