What Happens When Managers Are Informed? Effects of Critical Audit Matter Awareness and Auditor Relationship on Managers' Accounting Estimates

• 成果类型: Article
• 署名作者: Tan, Hun-Tong; Yeo, Feng
• 署名单位: Nanyang Technological University; University of South Carolina System; University of South Carolina Columbia
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2019-0370
• 发表日期: 2021
• 页码: 399-416
• 关键词: NONAUDIT SERVICES; client pressure; disclosure; distance; ACCOUNTABILITY; INDEPENDENCE; involvement; paragraphs; complexity; NORMS

摘要

We examine how managers' accounting estimates are affected by whether they are informed about an impending critical audit matter (CAM) disclosure from a close or distant auditor. A close (distant) auditor is one who has a smaller (greater) social distance from the client in terms of their working relationship. We predict and find that being informed about an impending CAM by a close (distant) auditor leads to more (less) aggressive estimates than if managers are not informed. With a close auditor-client relationship, managers perceive a CAM disclosure as forewarning investors about estimate subjectivity, thus providing a moral license to report more aggressively. With a distant relationship, a CAM disclosure does not provide a moral license, but signals greater auditor scrutiny, which leads to less aggressive reporting. Our results inform regulators and standard setters about the effects of CAM on managers' reporting decisions in the presence of a close auditor-client relationship.