Determinants of Undetected Unintentional Errors in Audited Financial Statements

66 Pages Posted: 16 Dec 2014 Last revised: 26 May 2015

See all articles by B. Louise Hayes

B. Louise Hayes

University of Guelph - Gordon S. Lang School of Business and Economics

Date Written: December 15, 2014

Abstract

This study investigates the associations between financial restatements and characteristics of the parties responsible for preventing and detecting unintentional errors, i.e., boards (through their audit committees), management (through chief financial officers (CFOs)), and auditors. To conduct this investigation, I developed a theoretical model of restatement determinants that is more complete than models used in previous archival research as it includes characteristics of all three parties and the moderating effects of chief financial officers’ financial expertise and influence on the disruptive effects of organizational change. I use a proxy for restatements that identifies restatements that correct unintentional error based on the language in restatement disclosures. Results show that of the three parties responsible for financial reporting quality, the CFO plays the major role with respect to unintentional error: The likelihood of restatement to correct unintentional error is decreasing in CFO financial expertise, but only when companies are undergoing organizational change. Results also show that CFOs’ (audit committees’) financial expertise is more strongly associated with restatements that correct unintentional error (intentional misstatement) than intentional misstatement (unintentional error). However, I find no evidence of significant associations between auditor quality and either restatements that correct unintentional error or intentional misstatement.

Suggested Citation

Hayes, B. Louise, Determinants of Undetected Unintentional Errors in Audited Financial Statements (December 15, 2014). 2015 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=2538943

B. Louise Hayes (Contact Author)

University of Guelph - Gordon S. Lang School of Business and Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
74
Abstract Views
785
rank
331,483
PlumX Metrics