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Auditor Monitoring of Non-GAAP Earnings
Bakke, Ashleigh
Bakke, Ashleigh
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Abstract
This study investigates whether auditors influence their clients’ unaudited non-GAAP earnings disclosures and how this influence varies across engagements. I find that auditors do appear to play a monitoring role with respect to non-GAAP earnings exclusions in settings with higher potential risk. Specifically, I find evidence of higher exclusion quality for clients of Big 4 auditors, clients of audit offices that were recently associated with non-GAAP-related SEC comment letters, and clients with greater litigation risk. However, I also find evidence of a reduction in auditor monitoring when independence may be impaired. In supplemental analyses, I provide further evidence that the results I document are attributable to auditor, and not client, incentives. I also document that auditor involvement is associated with a reduction in the aggressiveness of non-GAAP earnings disclosures, but not for economically important clients. My findings inform ongoing regulatory considerations regarding whether non-GAAP disclosures should be subject to greater auditor oversight.
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Date
2023-01-01
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University of Kansas
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This item contains archived web content.
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986213_1.pdf
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- Embargoed until 2173-05-31
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Keywords
Accounting, Audit quality, Auditing, Auditor incentives, Non-GAAP earnings, PCAOB standards, Voluntary disclosure