http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2184413

Pork Bellies and Public Company Audits: Have Audits Once Again Become Just Another Commodity?

Brant E. Christensen Texas A&M University – Department of Accounting

Thomas C. Omer University of Nebraska at Lincoln – School of Accountancy

Nathan Y. Sharp Texas A&M University – Department of Accounting

Marjorie K. Shelley University of Nebraska at Lincoln – School of Accountancy

September 5, 2014

Abstract: 
Prior research has established that from 2000 to 2007, auditors incorporated clients’ financial reporting risk in their pricing of audit engagements (Charles et al. 2010; Doogar et al. 2010, 2013). However, regulators have expressed concern that the economic downturn and pressure from clients to reduce audit fees has had a negative impact on auditor effort. Our evidence suggests a marked decline in the pricing of financial reporting risk during the 2006-2010 period, further suggesting a reduced focus on the risk of misreporting during that period. This decline is particularly evident among non-industry expert auditors. Connecting these findings to audit quality, we observe a higher likelihood of subsequent accounting restatements among clients whose financial reporting risk appears to be insufficiently incorporated in audit fees, particularly among clients of small audit firm offices. Our results are consistent with a return to the commoditization of financial statement audits and its negative impact on audit quality.

http://knowledge.wharton.upenn.edu/article/for-ceos-equity-and-press-releases-timing-is-everything/

When It Comes to CEOs, Equity and Press Releases, Timing Is Everything

Dec 23, 2014

Transparency is the cornerstone of corporate governance in the United States. Public companies must stick to a rigid schedule for reporting profits, losses and other financial data. And they must quickly disclose unscheduled events that current and potential shareholders will need to know about in order to assess the firm’s health and prospects.

It all seems quite simple.

But in practice, chief executives have some wiggle room: the power to choose just when to release certain types of information. New research by Wharton finance professor Alex Edmans and three colleagues shows that executives tend to use this flexibility to their advantage, releasing some types of information when it will boost the value of their own equity.

“When they expect to sell equity, they want the price to be high,” Twitter  says Edmans, who is also a finance professor at the London Business School. Continue reading →

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2407659

An Analysis of ‘Little r’ Restatements

Christine E. L. Tan Fordham University Schools of Business

Susan M. Young Fordham University

November 1, 2014
Fordham University Schools of Business Research Paper No. 2407659

Abstract: 
“Little r” restatements occur when a firm’s immaterial errors accumulate to a material error in a given year. Unlike “Big R” restatements, which must be reported through an SEC 8-K material event filing, little r restatements do not require an 8-K form or a withdrawal of the auditor opinion. This paper documents this previously unexamined form of restatement and analyzes the characteristics of the firms who have used this method of correcting accounting errors over the period 2009 through 2012. We find that approximately 12 percent of the companies in our total sample have little r restatements. Contrary to concerns voiced by regulators and research agencies, we find in univariate tests, that little r firms are generally more profitable, have lower leverage and stronger corporate governance than Big R firms and do not significantly differ from non-revising firms. We also find that the majority of these firms do not include any discussion of why these little r’s occurred. Policy implications related to disclosure are discussed.