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Uninvolved: Effects of Misstatement-Independent Auditor Oversight

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Title:Uninvolved: Effects of Misstatement-Independent Auditor Oversight
Authors:Gomez, Pedro
Keywords:audit quality
audit firm reputation
market reactions to misstatements
audit firm turnover
show 1 moreaudit firm turnover market reactions
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Date Issued:2021
Abstract:Researchers in prior studies assume the current auditor is responsible for misstated financials or attempt to perform filtering to assign responsibility. However, for a minimally filtered sample of restatements within Audit Analytics, 20 percent of the restatements annually correspond to cases where the auditor engaged at the time of a restatement announcement was not engaged during the misstatement period. I refer to these observations as uninvolved. Using a similar model from prior literature, I find that companies with involved audit firms are negatively associated with the abnormal return around the restatement announcement. Following the restatement announcement, companies with uninvolved audit firms have a lower likelihood of experiencing audit turnover, and uninvolved auditor departures are characterized by a positive abnormal market reaction around the departure date. These findings suggest that involvement is an informative dimension to the market and is associated with different audit outcomes.
Appears in Collections: 01 Auditing (AUD)

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