Keywords

financial reporting, audit experience, discretionary accruals, audit fees

Abstract

In this study, we investigate the financial reporting behavior of chief financial officers (CFOs) with significant prior audit experience. Our tests indicate that, on average, CFOs who were former audit managers or partners report less aggressively than CFOs without prior audit experience. Thus, the mindset that auditors develop during their time in public accounting – which should value objective, 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. Further, we find that audit fees are lower for clients with priorauditor CFOs but increase as the CFOs’ time away from auditing increases. Overall, our study offers important insights regarding how audit experience is associated with the financial reporting behavior of CFOs.

Original Publication Citation

Condie, E. R., K. M. Obermire, T. A. Seidel, and M. S. Wilkins. 2021. The effect of prior audit experience on CFO financial reporting aggressiveness. Auditing: A Journal of Practice & Theory 40 (4): 99-121.

Document Type

Peer-Reviewed Article

Publication Date

2021

Publisher

Auditing: A Journal of Practice and Theory

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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