Pro Forma Disclosures, Audit Fees, and Auditor Resignations

Posted: 13 Oct 2010 Last revised: 12 Jul 2014

See all articles by Long Chen

Long Chen

George Mason University - Department of Accounting

Gopal V. Krishnan

Bentley University

Mikhail Pevzner

University of Baltimore - Merrick School of Business

Date Written: May 15, 2012

Abstract

The disclosure of non-GAAP (pro forma) earnings numbers by managers in the post-SOX era continues to attract attention from regulators, media, and researchers. However, there is limited empirical evidence on how auditors view clients that emphasize pro forma earnings over GAAP earnings. We study the extent to which audit fees and auditor resignations are associated with opportunistic non-GAAP disclosures. We find that during the pre-SOX period, optimistic pro forma differences, measured using either IBES actual earnings or hand-collected pro forma earnings, are associated with higher audit fees and a higher likelihood of auditor resignations. Additional results indicate that auditors seem to be more concerned with non-GAAP earnings disclosures in the post-SOX period.

Keywords: Sarbanes-Oxley Act, Regulation G, Audit Fees, Auditor Resignations, Non-GAAP earnings

JEL Classification: M40, M41

Suggested Citation

Chen, Long and Krishnan, Gopal and Pevzner, Mikhail, Pro Forma Disclosures, Audit Fees, and Auditor Resignations (May 15, 2012). Journal of Accounting and Public Policy, Vol. 31, No. 3, 2012. Available at SSRN: https://ssrn.com/abstract=1691386

Long Chen

George Mason University - Department of Accounting ( email )

Fairfax, VA
United States

Gopal Krishnan

Bentley University ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2477 (Phone)

Mikhail Pevzner (Contact Author)

University of Baltimore - Merrick School of Business ( email )

1420 N. Charles St.
Baltimore, MD 21201-5779
United States

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