The Effect of Auditor Industry Specialization and Board Independence on the Cash Flow Reporting Classification Choices under IFRS

37 Pages Posted: 9 Oct 2020

See all articles by Shuling Chiang

Shuling Chiang

Independent

Gary Kleinman

Montclair State University - School of Business

Picheng Lee

Pace University - Department of Accounting

Date Written: May 21, 2020

Abstract

This study explores the relationship between audit partner and firm industry specialization and board of director independence on the one hand and the decision by Taiwanese firms to take advantage of IFRS flexibility concerning reporting interest income and expense, and dividends received in the operating cash flow section of the statement of cash flows on the other. A sample of 1,227 Taiwanese firms were drawn for fiscal year 2013, the year that Taiwan switched from using its GAAP to using IFRS principles. Of these, 354 changed their cash flow reporting classifications. We examine the interaction effect of board independence and auditor industry specialization at both partner-level and firm-level on the cash flow reporting classification choices under IFRS. The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specialization have a complementary relationship with board independence in not changing a firm’s interest expense paid reported in operating activities to financing activities.

Suggested Citation

Chiang, Shuling and Kleinman, Gary and Lee, Picheng, The Effect of Auditor Industry Specialization and Board Independence on the Cash Flow Reporting Classification Choices under IFRS (May 21, 2020). Available at SSRN: https://ssrn.com/abstract=3678379 or http://dx.doi.org/10.2139/ssrn.3678379

Shuling Chiang

Independent ( email )

Gary Kleinman

Montclair State University - School of Business ( email )

Upper Montclair, NJ 07043
United States

Picheng Lee (Contact Author)

Pace University - Department of Accounting ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

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