Analysts' Cash Flow Forecasts, Audit Effort, and Audit Opinions on Internal Control

Mao, Mike Qinghao; Yu, Yangxin

doi:10.1111/jbfa.12117

Cited by 30 publications

(17 citation statements)

References 62 publications

(81 reference statements)

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…We also examine whether audit fees paid to external auditors are influenced by the frequency of PCAOB inspection. Consistent with prior studies (Simon and Francis, ; Whisenant et al., ; Raghunandan and Rama, ; Peel and Makepeace, ; Mao and Yu, ), we estimate the following ordinary least square (OLS) regression model, clustering by firm to control for heteroscedasticity and serial dependence (Petersen, ):

\begin{matrix} true \\ right LNAUDFEES & = & left α_{0} + α_{1} italicLGR_italicPORT + α_{2} italicLNTA + α_{3} italicGEOSEGS + α_{4} italicBUSSEGS \\ left + α_{5} italicFOREIGN + α_{6} italicEXTRAORD + α_{7} italicLEVERAGE + α_{8} italicROA \\ left + α_{9} italicLOSS + α_{10} italicBTM + α_{11} italicLITIGATION + α_{12} italicICW + α_{13} italicGC \\ left + α_{14} italicTENURE + α_{15} italicFINANCE + α_{16} italicMERGER + α_{17} italicAR_italicINVT \\ left + Y R_F F + ε . \end{matrix}

…”

Section: Methodsmentioning

confidence: 95%

“…We control for financial leverage ( LEVERAGE ) and profitability ( ROA and LOSS ), as restatement companies tend to have higher leverage and be less profitable than non‐restating companies (Kinney and McDaniel, ; DeFond and Jiambalvo, ), and financially distressed firms have an incentive to engage in earnings management to appear stronger and not violate debt covenants (DeFond and Jiambalvo, ). We also control for book‐to‐market ratio ( BTM ) as a proxy for growth, as high growth firms have greater incentive to manage earnings to meet market expectations (Francis and Yu, ), and managers of these firms have higher earnings management incentive to avoid large financial losses at both the firm and personal levels (Mao and Yu, ). We control for the strength of the firm's internal control ( ICW ), as firms with material weaknesses report poorer quality financial statements (Ge and McVay, 2004; Doyle et al., ).…”

Section: Methodsmentioning

confidence: 99%

See 1 more Smart Citation

The Unintended Consequences of the Frequency of PCAOB Inspection

Tanyi¹,

Litt

2016

Business Fin & Account

View full text Add to dashboard Cite

After more than 50 years of self-regulation of the US auditing profession, the Sarbanes-Oxley Act of 2002 (SOX) created the Public Company Accounting Oversight Board (PCAOB) as a quasi-governmental entity with statutory authority to inspect accounting firms that audit public clients. The frequency of this inspection is annual or triennial, based upon the number of public clients the firm audits. We examine the effects of these two levels of inspection frequency on financial reporting quality and audit fees for clients of small and midsize public accounting firms. Our findings provide evidence of significantly higher audit quality and audit fees for clients of annually inspected firms relative to clients of triennially inspected firms. These findings are robust to auditor-client alignment analyses, propensity score matching, time-series analyses, examination of firms that have changed from triennial to annual inspection, and particular examination of firms with inspection deficiencies. Overall, our study suggests that the two-tier frequency system of PCAOB inspection may have also resulted in two-tier audit quality and audit fee systems for small and midsize public accounting firms, with more frequent inspection leading to more rigorous and informed auditor decisions. We discuss the implications of our results for the Board and the profession at large.

show abstract

\begin{matrix} true \\ right LNAUDFEES & = & left α_{0} + α_{1} italicLGR_italicPORT + α_{2} italicLNTA + α_{3} italicGEOSEGS + α_{4} italicBUSSEGS \\ left + α_{5} italicFOREIGN + α_{6} italicEXTRAORD + α_{7} italicLEVERAGE + α_{8} italicROA \\ left + α_{9} italicLOSS + α_{10} italicBTM + α_{11} italicLITIGATION + α_{12} italicICW + α_{13} italicGC \\ left + α_{14} italicTENURE + α_{15} italicFINANCE + α_{16} italicMERGER + α_{17} italicAR_italicINVT \\ left + Y R_F F + ε . \end{matrix}

…”

Section: Methodsmentioning

confidence: 95%

Section: Methodsmentioning

confidence: 99%

The Unintended Consequences of the Frequency of PCAOB Inspection

Tanyi¹,

Litt

2016

Business Fin & Account

View full text Add to dashboard Cite

show abstract

“…Mao and Yu [25] examined how an external auditor responds to the issuance of financial analysts' cash flow forecasts. As a result of the analysis, it suggests that if the financial analyst provides cash flow forecasts, it limits the manipulation of earnings and reduces the manager's opportunistic accounting selection behavior, thereby reducing inherent and control risks and strengthening internal control over the firms' financial reporting.…”

Section: A Study On the Effect Of Analysts' Cash Flow Forecasts Issuancementioning

confidence: 99%

A Study on the Relationship between Analysts’ Cash Flow Forecasts Issuance and Accounting Information: Evidence from Korea

Shin

2019

Sustainability

View full text Add to dashboard Cite

This study analyzes the relationship between the future cash flow forecast information provided by financial analysts and accounting information. We examine whether the joint issuance of financial analyst earnings forecasts and cash flow forecasts from 2011 to 2015 contributes to the information usefulness of Korean listed firms. The empirical results of this study are as follows. First, the issuance of analysts' cash flow forecasts and earnings forecast accuracy were significant positive values. Cash flow forecast accuracy and earnings forecast accuracy were significant positive values. Second, the issuance of analysts' cash flow forecasts and buy-sell bid spread are significant negative values. These results show that the information asymmetry between the manager and the investor can be reduced based on the rich information environment. This study suggests that cash flow forecasting information of financial analysts provides important evidence for capital market participants because it provides evidence that capital market participants' information can be used as useful information for economic decision-making. These results show the sustainability of a firm from the viewpoint of a financial analyst who acts as an intermediary and external supervisor in the capital market. In addition, the analysts' cash flow forecasting information is expected to reduce the information asymmetry between the company and the investor, thereby increasing the transparency and sustainability of the firm.

show abstract

“…Recently, Mao and Yu (2015) examined whether analysts' cash flow forecasts act as a governance mechanism over the companies on which these forecasts are issued, and, if so, how this oversight influences auditors' responses. With respect to ARL, they found that audit delay was significantly lower for companies with cash flow forecasts.…”

Section: Governancementioning

confidence: 99%

“…2007 Chinese accounting standards The author found that ARL appeared to be significantly reduced following the adoption of the 2007 Chinese accounting standards, with the most substantial reduction in ARL observed for clients of smaller audit companies. Mao and Yu (2015) [Archival] 291 companies with cash flow forecasts published in I/B/E/S starting in 2004 (matched to similar companies without cash flow forecasts using propensity scoring). The full sample runs from the period 2000 to 2010.…”

Section: Family Companiesmentioning

confidence: 99%

An International Perspective on Audit Report Lag: A Synthesis of the Literature and Opportunities for Future Research

et al. 2016

View full text Add to dashboard Cite

Audit report lag (ARL) is the length of time from a company's fiscal year-end to the audit report date, and is often viewed as the most important financial reporting timeliness determinant. Given that timeliness is an area of interest to investors, managers, regulators, auditors and academics, an understanding of ARL determinants is extremely important. As financial markets become more globally oriented, an international understanding of ARL determinants becomes even more important. This paper summarizes the extant literature on ARL and its determinants with an emphasis on international literature. Our review categorizes prior research based on company-specific and auditrelated factors, and explores the associations that have been identified with respect to ARL. Finally, we identify possible areas of interest not currently present in the literature and speculate on several opportunities for future research.

show abstract

Analysts' Cash Flow Forecasts, Audit Effort, and Audit Opinions on Internal Control

Cited by 30 publications

References 62 publications

The Unintended Consequences of the Frequency of PCAOB Inspection

The Unintended Consequences of the Frequency of PCAOB Inspection

A Study on the Relationship between Analysts’ Cash Flow Forecasts Issuance and Accounting Information: Evidence from Korea

An International Perspective on Audit Report Lag: A Synthesis of the Literature and Opportunities for Future Research

Contact Info

Product

Resources

About