The Effect of Prior Audit Experience on CFO Financial Reporting Aggressiveness

56 Pages Posted: 25 Apr 2019 Last revised: 12 Feb 2020

See all articles by Eric Condie

Eric Condie

Georgia Institute of Technology

Kara Obermire

Oregon State University

Timothy A. Seidel

Brigham Young University

Michael S. Wilkins

University of Kansas

Date Written: February 11, 2020

Abstract

In this study, we investigate the financial reporting behavior of chief financial officers (CFOs) with prior audit experience. Our tests indicate that, on average, CFOs who were former auditors report less aggressively than CFOs without prior audit experience. Thus, the mindset that auditors develop during their time in public accounting – which should value ethical, transparent, and conservative 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 audit experience decays. Auditors appear to adjust effort similarly, as audit fees are lower for clients with prior-auditor CFOs but increase as the CFOs’ time away from auditing increases. Overall, our study offers important insights regarding how audit experience impacts the financial reporting behavior of top executives.

Keywords: Financial Reporting, Audit Experience, Discretionary Accruals, Audit Fees

Suggested Citation

Condie, Eric and Obermire, Kara and Seidel, Timothy A. and Wilkins, Michael S., The Effect of Prior Audit Experience on CFO Financial Reporting Aggressiveness (February 11, 2020). 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 )

410 Austin Hall
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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