Latham & Watkins Discusses the Proposed ESG Auditing Rule You Know Nothing About

By Sarah E. Fortt and Malorie R. Medellin September 20, 2023 by renholding

On June 6, 2023, the Public Company Accounting Oversight Board (PCAOB), the nonprofit corporation established by Congress to oversee the audit of public companies, proposed new auditing standards designed to further its “investor-protection mandate.”[1]These standards, if adopted, would …

How Financial Statement Fraud Affects People’s Desire to Become Accountants

By Robert Carnes, Dane Christensen and Paul Madsen August 4, 2023 by renholding

Financial statement fraud has many negative effects, including a reduction in people’s willingness to participate in the stock market. It may also cast accountants in a negative light because they prepare and audit financial statements – sometimes even fraudulent ones. …

Can Integrity Pledges Improve Financial Reporting?

By Jonas Heese, Gerardo Perez Cavazos and Caspar David Peter July 12, 2023 by renholding

In recent years, integrity oaths have gained popularity as a tool to reinforce ethical behavior among executives and professionals. However, little is known about the impact of these oaths on firms’ financial reporting quality. We answer this question using data …

No Comment: Language Barriers and the IASB’s Comment Letter Process

By Eduardo Flores, Brian Monsen, Emily Shafron and Christopher G. Yust May 25, 2023 by renholding

High-quality accounting standards are critical for efficient global markets. The most widespread – used in more than 150 countries – are International Financial Reporting Standards (IFRS). The International Accounting Standards Board (IASB) creates and maintains IFRS, which is challenging because …

Modeling Managers as EPS Maximizers

By Itzhak Ben-David and Alex Chinco April 26, 2023 by renholding

In business schools, managers are taught to maximize the net present value (NPV) of future cash flows. In the real world, managers consistently ignore this advice. When asked, they repeatedly say they maximize earnings per share (EPS). “Firms view earnings, …

How Accounting Comparability Between Bidders and Targets Affects Deal Outcomes

By Seraina C. Anagnostopoulou and Andrianos E. Tsekrekos September 21, 2022 by renholding

How comparable are the financial statements of M&A bidders and acquirers in the same industry? And does financial statement comparability affect the outcome of a deal? In a recent paper, available here, we investigate these questions, using a sample …

Climate Change, West Virginia v. EPA, and the SEC’s Distinctive Statutory Mandate

By Jill E. Fisch, George S. Georgiev, Donna M. Nagy and Cynthia A. Williams September 6, 2022 by renholding

In March 2022, the Securities and Exchange Commission (SEC) proposed a rule that would require publicly traded companies to provide investors with various climate-related disclosures (the Proposal).[1]The rule has generated extensive debate and the SEC has received more …

Revisiting the Audit Expectations Gap

By Wendy Heltzer and Mary Mindak July 25, 2022 by renholding

As the regulation of public company audits evolves, questions persist over whether there is still a gap between the public and auditors over expectations for the responsibilities of auditors – what we call the expectations gap. In a recent study, …

Corporate Culture and Financial Reporting Quality

By Avishek Bhandari, Babak Mammadov, Maya Thevenot and Hamid Vakilzadeh July 12, 2022 by renholding

Corporate culture is an important determinant of companies’ behavior and success and, as a result, has drawn much attention, particularly from the business press. While some companies have received praise for their corporate cultures, others such as Wells Fargo, Valeant …

How Sarbanes-Oxley Changed Firms’ Responses to Announcements of Earnings Restatements

By Jo-Ellen Pozner December 14, 2021 by renholding

Among the many goals of the Sarbanes-Oxley legislation was to increase CEOs’ accountability for the veracity of financial statements by requiring that they personally certify financial disclosures. Although that provision has not led to successful prosecutions of offending executives, our …

SEC’s Accounting Chief on Financial Reporting and the Priorities of His Office

By Paul Munter December 7, 2021 by renholding

The events of the past year bring to mind the old saying that “change is the only constant in life.”[1] Our capital markets continue to evolve and adapt in response to changes in the economic environment, investors’ needs for

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SEC Commissioner Speaks on ESG Risks and Company Accounting Controls

By Caroline A. Crenshaw November 17, 2021 by renholding

Thank you for the kind introduction Kevin [Gould]. It’s a pleasure to be here today at the annual PepsiCo-PwC CPE conference, which I understand is a tradition going back 18 years now. I appreciate the opportunity to speak, and I

…

How Quarterly Financial Reports Affect Employee Job Search

By Ed deHaan, Nan Li and Frank Zhou July 19, 2021 by renholding

Quarterly financial reports are an important way for companies to communicate with the capital market, and they clearly affect firms’ access to debt and equity capital. However, the most scarce and sought after resource for many modern, cash-rich companies is …

The Importance of Context for Numbers in Earnings Conference Calls

By Kris Allee, Chuong Do and Huy Do June 28, 2021 by renholding

Numbers generally convey a sense of certainty – especially in accounting and finance. However, this perceived precision also makes it easier to use them in misleading ways. An extensive literature in political science and mass communications discusses how numbers, taken …

Does Firm-Specific Knowledge Matter for New Audit Committee Chairs and Financial Reporting Quality?

By Linda A. Myers, Roy Schmardebeck and Stefan Slavov June 10, 2021 by renholding

Overcoming the learning curve for a new situation or role at work can be difficult, especially when the situation or role requires specialized knowledge. Newly appointed audit committee chairs face a particularly steep learning curve, given that audit committees of …

SEC Commissioner Lee Speaks on Myths and Misconceptions about “Materiality”

By Allison Herren Lee May 26, 2021 by renholding

Thank you, Neil [Stewart] for the introduction and for having me today as you discuss the important and timely topic of climate and ESG disclosures. I very much look forward to hearing from Janine [Guillot] and Julie [Bell Lindsay]. You

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The Efficacy of PCAOB Operational Decision Making

By James J. Blann, Tyler J. Kleppe and Jonathan E. Shipman May 11, 2021 by renholding

The operating budget of the Public Company Accounting Oversight Board (PCAOB) has grown significantly since the regulator’s inception, with the total annual resources consumed by the PCAOB almost doubling—from $127 million to $252 million—between 2006 and 2018 (PCAOB 2007, 2019). …

SEC Speaks on Accounting and Reporting Considerations for SPAC Warrants

By John Coates and Paul Munter April 13, 2021 by renholding

In a recent statement,[1] Acting Chief Accountant Paul Munter highlighted a number of important financial reporting considerations for SPACs.[2] Among other things, that statement highlighted challenges associated with the accounting for complex financial instruments that may be common

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SEC’s Acting Chief Accountant Discusses Reporting and Auditing Issues for Companies Merging with SPACs

By Paul Munter April 1, 2021 by renholding

In recent years, we have seen significant market developments and innovation in our capital markets, with a variety of structures being utilized to raise capital and facilitate taking private companies public.[1]

The U.S. capital markets are often described as

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How Scrutinizing Honest Managers Encourages Earnings Management

By Jessen L. Hobson and Sebastian Stirnkorb January 28, 2021 by renholding

Research in finance and accounting consistently documents that a significant number of managers overstate reported earnings when true earnings miss a benchmark [1]. Managers face strong incentives to meet and beat important earnings thresholds, such as the analyst consensus forecast …

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