Cash flows, Cash flow prediction, Core cash flows, Cash flow variability, G29, M41,

Under SFAS No. 131, a company is required to provide a reconciliation of the total of the reportable segments profit or loss to the firms consolidated income. This paper investigates these segment disclosures and related determinants of managers segment financial reporting choices. We focus on managers decisions to report segment-to-firm level reconciliations (i.e., segment reconciliations (SERs)) differences between firm-level and aggregated segment-level earnings. On average, we find that SERs are significant when the differences are not equal to zero. Firms with higher agency costs and greater accruals are less likely to report segment reconciliations. However, firms that have a greater number of segments, larger firms, and firms with higher leverage, losses, and greater earnings volatility are more likely to report SER?0. Consistent with managers having some segment reporting discretion, our overall findings suggest a managers segment reporting choice is partly driven by agency costs. Interestingly, among firms with reported segment reconciliations, firms with higher agency costs are more likely to report positive SERs. Consequently, this study documents a relation between proxies for agency costs and managers decisions to report segment reconciliations. Policy implications and suggestions for future research are discussed in the paper.

We extend Dopuch et al. (2003) by examining the effect of various fee ratios on investor perception of auditor independence and market behavior. Consistent with Dopuch et al. (2003), we find disclosure of nonaudit fees reduces the accuracy of investor perception of auditor independence. More importantly, we document that the proportionate level of nonaudit fees to total fees has a varying impact on investor perception of auditor independence and market behavior. In particular, there appears to be a nonlinear effect between investor perception of auditor independence and market behavior. In summary, when investors perceive auditor independence is impaired as a result of the level of nonaudit fees, more asset pricing inefficiencies occur in these experimental markets.

No abstract

This article investigates earnings revisions that occur between preliminary earnings announcements and the immediate subsequent Securities and Exchange Commission (SEC) filings. On average, the absolute value of the revision is 2.9% of the market value of equity where earnings were revised by more than US$100,000. The authors find that earnings revisions are more likely to occur for firms that are more complex, are more financially leveraged, have greater earnings volatility, have losses, and have switched auditors. They find that investors react to the new information in the earnings revisions but find mixed evidence about whether the act of revision itself indicates lower earnings quality to investors. The authors' findings suggest that financial analysts, investors, and regulators alike should pay close attention not only to an earnings surprise at the preliminary earnings announcement date but also at the SEC filing date to determine whether a subsequent earnings surprise occurs.Keywords market efficiency, asset pricing, earnings announcement, SEC filings, earnings revisions Regulators and prior research have shown that investors have suffered significant losses as market capitalizations have dropped by billions of dollars due to restatements of audited financial statements (Levitt, 2000;Palmrose, Richardson, & Scholz, 2004). Less discernable restatements occur between the preliminary earnings announcement and the immediately subsequent Securities and Exchange Commission (SEC) filing (henceforth called earnings revisions); however, very little is known in the academic literature about these revisions. This study first examines the characteristics of firms most prone to earnings revisions and the type of income statement components that are most likely to be affected. We then assess the market's response to the additional earnings surprise (in the SEC filing) and the total earnings surprise (i.e., the preliminary earnings surprise plus the additional earnings surprise at the time of the SEC filing) to determine whether the market's reactions to the mere act of earnings revision is negative, irrespective of its content. Downloaded from 14. In untabulated results, we ran additional analysis on the lags. 15. Among the reasons for the earnings revisions are legal proceedings and settlements, loan loss provisions, responses to new SEC guidance, and admitted accounting errors and auditor-forced revenue recognition changes.