How Economic Conditions Affect Auditors’ Judgment

Auditor judgment and technical competence are central to audits, and a lack of those qualities has led to many audit deficiencies, according to the Public Company Accounting Oversight Board (PCAOB), the UK’s Financial Reporting Council (FRC), and other regulators around the world. In our recent article, “Long-Term Impact of Economic Conditions on Auditors’ Judgment,” available here, we use two newly-available archival datasets on auditors’ personal information and their audit adjustments, and provide evidence on whether and how the economic conditions at the time of an auditor’s entry into the labor market affect her judgment and decision-making years later.

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Recession CEOs Have an Edge

Much recent work in finance and economics aims to understand the role that chief executive officers and other top managers play in the firms they run. Traditional theories about firm decisions on matters such as capital structure or investments don’t consider the role of CEOs or they assume that rational managers will behave identically if faced with the same problem. However, the more recent literature suggests that CEOs behave in very different ways that matter to the firms that they run. Several papers have shown substantial changes in a firm’s stock price and accounting performance when its top management changes. … Read more

How Conservative Accounting Helped Boost Investment during the Financial Crisis

Untitled-1A host of studies have examined the link between accounting and the 2007-2008 global financial crisis, most of them focusing on whether fair value accounting or accounting discretion at financial institutions helped skew valuations on bank balance sheets. In our recent article, “The Effect of Accounting Conservatism on Corporate Investment during the Global Financial Crisis,” available here, we examine how financial reporting at non-financial firms affected the economy during the crisis. Prior studies provide evidence that the financial crisis was a relatively exogenous shock to the supply of external finance (at least with respect to any individual firm) that significantly … Read more