Bank Regulation/Supervision and Bank Auditing

44 Pages Posted: 11 Jun 2020 Last revised: 14 Jul 2022

See all articles by Al (Aloke) Ghosh

Al (Aloke) Ghosh

UNC Charlotte

Henry Jarva

Hanken School of Economics

Stephen G. Ryan

New York University (NYU) - Leonard N. Stern School of Business

Date Written: July 13, 2022

Abstract

We investigate how the overlapping activities of bank regulators/supervisors and bank auditors influence banks’ internal control quality, the effort expended by bank auditors, and banks’ financial statement reliability. Using material weaknesses in internal controls as the proxy for internal control quality, we find that banks exhibit fewer internal control problems than do comparable nonbank financial firms. Using audit fees and earnings announcement lags as proxies for audit effort, we find that auditors expend less effort in audits of banks than in audits of nonbanks. Using restatements of financial statements as the proxy for financial statement reliability, we find that banks’ financial reports are more reliable than those of nonbanks. Collectively, our findings suggest that, despite lower auditor effort, the aggregate efforts of bank regulators/supervisors and bank auditors yield enhanced internal control and more reliable financial reporting by banks than by nonbanks.

Keywords: Banks, auditing, audit effort, regulation, supervision, internal controls, material misstatements, accounting

JEL Classification: G21, G23, G28, M41, M42

Suggested Citation

Ghosh, Al (Aloke) and Jarva, Henry and Ryan, Stephen G., Bank Regulation/Supervision and Bank Auditing (July 13, 2022). Available at SSRN: https://ssrn.com/abstract=3603346 or http://dx.doi.org/10.2139/ssrn.3603346

Al (Aloke) Ghosh (Contact Author)

UNC Charlotte ( email )

9201 University City Blvd
Charlotte, NC 28223
United States

HOME PAGE: http://www.alokeghosh.com

Henry Jarva

Hanken School of Economics ( email )

PB 287
Helsinki, Vaasa 65101
Finland

Stephen G. Ryan

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street, Suite 10-73
New York, NY 10012-1118
United States
212-998-0020 (Phone)

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