Does Audit Regulation Improve the Underlying Information Used by Managers? Evidence from PCAOB Inspection Access and Management Forecast Accuracy

Survey evidence and academic research raise the possibility that audit regulation can impact not only the information contained in external financial reports but also the internal information used by management. We investigate this possibility by examining the improvement in management forecast accuracy around initiation of the Public Company Accounting Oversight Board’s (PCAOB) international inspection program. Consistent with managers having improved information, we find that managers issue more accurate forecasts following PCAOB inspection access. Multiple additional analyses support that an improved information environment is the mechanism underlying our results, and this effect is distinct from, and incremental to, any effects of PCAOB inspection on external reporting quality. Our study provides evidence that audit regulation benefits an important internal stakeholder—managers.

Keywords: PCAOB inspection; voluntary disclosure; management forecast accuracy; audit regulation

JEL Classification: G18, M41, M42, M48

Suggested Citation: Suggested Citation

Christensen, Brant E. and Lei, Lijun (Gillian) and Shu, Sydney Qing and Thomas, Wayne B., Does Audit Regulation Improve the Underlying Information Used by Managers? Evidence from PCAOB Inspection Access and Management Forecast Accuracy (September 15, 2022). Accounting, Organizations and Society, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3313562 or http://dx.doi.org/10.2139/ssrn.3313562