The Effect of Social Identity on the Financial Reporting Aggressiveness of Former Auditors

58 Pages Posted: 25 Apr 2019

See all articles by Eric Condie

Eric Condie

Georgia Institute of Technology

Kara Obermire

Oregon State University; Oregon State University

Timothy A. Seidel

Brigham Young University

Michael S. Wilkins

University of Kansas

Date Written: April 3, 2019

Abstract

In this study, we leverage social identity theory to study the financial reporting behavior of chief financial officers (CFOs) with prior auditing experience. Social identity theory suggests that the values learned within a profession are likely to influence behavior after an individual leaves the profession. Our tests indicate that, on average, CFOs who were former auditors report less aggressively than CFOs without previous auditing experience. Thus, the public accounting social identity – which should include a mindset that values ethical, conservative, and transparent financial reporting – appears to persist when auditors take high-level positions in industry. However, we also find that the reporting behavior of prior-auditor CFOs becomes more aggressive over time as the salience of their public accounting experience decays. Auditors appear to adjust effort similarly, as both audit fees and audit delay are lower for clients with prior-auditor CFOs but increase as the CFOs’ time away from public accounting increases. Overall, our study provides support for social identity theory in a new setting and offers important insights regarding how auditing experience impacts the financial reporting decisions of top executives.

Keywords: Financial Reporting, Social Identity, Auditing, Discretionary Accruals

Suggested Citation

Condie, Eric and Obermire, Kara and Seidel, Timothy A. and Wilkins, Michael S., The Effect of Social Identity on the Financial Reporting Aggressiveness of Former Auditors (April 3, 2019). Georgia Tech Scheller College of Business Research Paper No. 19-06. Available at SSRN: https://ssrn.com/abstract=3365031 or http://dx.doi.org/10.2139/ssrn.3365031

Eric Condie

Georgia Institute of Technology ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Kara Obermire

Oregon State University ( email )

Corvallis, OR 97331
United States

Oregon State University ( email )

Bexell Hall 200
Corvallis, OR 97331
United States

Timothy A. Seidel

Brigham Young University ( email )

Provo, UT 84602
United States

Michael S. Wilkins (Contact Author)

University of Kansas ( email )

Capitol Federal Hall
1654 Naismith Dr.
Lawrence, KS 66045
United States

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