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Why Regulate Private Firm Disclosure and Auditing?

Accounting and Business Research, Vol 47, No. 5, 2017

50 Pages Posted: 9 Mar 2017 Last revised: 10 Jun 2017

Michael Minnis

University of Chicago - Booth School of Business

Nemit Shroff

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: March 6, 2017

Abstract

Private firms face differing financial disclosure and auditing regulations around the world. In the United States and Canada, for example, private firms are generally neither required to disclose their financial results nor have their financial statements audited. By contrast, many firms with limited liability in most other countries are required to file at least some financial information publicly and are also required to have their financial statements audited. This paper discusses and analyzes the reasons for differential financial reporting regulation of private firms. We first discuss various definitions of a private firm. Next, we examine theoretical arguments for regulating the financial reporting of these firms, particularly related to public disclosure and auditing. We then provide new survey based evidence of firms’ and standard setters’ views of regulation. We conclude by identifying future research opportunities.

Keywords: Private companies; Regulation; Disclosure regulation; Accounting; Auditing; Financial reporting; Externalities; Survey

JEL Classification: G3; H8; M4

Suggested Citation

Minnis, Michael and Shroff, Nemit, Why Regulate Private Firm Disclosure and Auditing? (March 6, 2017). Accounting and Business Research, Vol 47, No. 5, 2017. Available at SSRN: https://ssrn.com/abstract=2928775

Michael Minnis

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

Nemit Shroff (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main St.
E62-679
Cambridge, MA MA 02142
United States
6173240805 (Phone)

HOME PAGE: http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=51407&co_list=F

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