Relation between Audit Effort and Financial Report Misstatements: Evidence from Quarterly and Annual Restatements

• 成果类型: Article
• 署名作者: Lobo, Gerald J.; Zhao, Yuping
• 署名单位: University of Houston System; University of Houston
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-50440
• 发表日期: 2013
• 页码: 1385-1412
• 关键词: internal control; risk model; COMPENSATION; determinants; nonaudit; QUALITY; errors; MARKET; FRAUD; fees

摘要

We identify two research design issues that explain the inconsistency between the theoretically predicted negative relation between audit effort and misstatements (measured using restatements) and empirical findings. First, auditor risk adjustment behavior induces an upward bias in the association between audit effort and restatements. Second, the theoretical prediction applies only to audited financial reports (i.e., annual reports) and not to unaudited reports (i.e., interim quarterly reports). Coming ling restatements of audited with unaudited reports introduces an additional upward bias in the association between audit effort and restatements. After correcting for these two sources of bias, we find a robust negative association between audit effort and annual report restatements.