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

55 Pages Posted: 20 Jan 2019 Last revised: 30 Jul 2020

See all articles by Brant E. Christensen

Brant E. Christensen

University of Oklahoma; Norwegian School of Economics (NHH) - Department of Accounting, Auditing and Law

Lijun (Gillian) Lei

University of North Carolina at Greensboro

Sydney Qing Shu

Miami University of Ohio - Department of Accountancy

Wayne B. Thomas

University of Oklahoma

Date Written: July 29, 2020

Abstract

Survey evidence and academic research raises the possibility that audit regulation can impact not only the information contained in external financial reports but also the internal information used by management (International Federation of Accountants, 2018; Libby, Rennekamp, & Seybert, 2015). We investigate this issue 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. Further, this improvement in forecast accuracy is more pronounced in countries with stronger legal institutions, supporting the intended effect of legal institutions to facilitate enacted regulations. Our study uses a multi-country setting to provide 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

Christensen, Brant E. and Lei, Lijun 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 (July 29, 2020). Available at SSRN: https://ssrn.com/abstract=3313562 or http://dx.doi.org/10.2139/ssrn.3313562

Brant E. Christensen

University of Oklahoma ( email )

Norman, OK 73019-4004
United States

Norwegian School of Economics (NHH) - Department of Accounting, Auditing and Law ( email )

Helleveien 30
N-5045 Bergen
Norway

Lijun Lei

University of North Carolina at Greensboro ( email )

P.O.Box 26170
Greensboro, NC 27412
United States

Sydney Qing Shu (Contact Author)

Miami University of Ohio - Department of Accountancy

3094 Farmer School of Business
800 E. High St.
Oxford, OH 45056
United States

Wayne B. Thomas

University of Oklahoma ( email )

Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)

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