Investors' response to revelations of prior uncorrected misstatements

Thomas C. Omer, Marjorie K. Shelley, Anne Margaret Thompson

Research output: Contribution to journalArticlepeer-review

Abstract

This study examines investors' response to the disclosure of prior-period waived misstatements under Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in the Current Year. Misstatement correction decisions typically are not observable, and financial statement users have little insight into the disposition of identified misstatements, a dimension of audit and financial statement quality. We find that investors respond negatively to the disclosure of SAB No. 108 misstatements, and this response is associated with the current-period auditor initially waiving the misstatement and client importance. Although SAB No. 108 misstatements were waived under prevailing materiality guidance, our findings suggest that investors interpret SAB No. 108 misstatements as indicating lower perceived audit quality.

Original languageEnglish (US)
Pages (from-to)167-192
Number of pages26
JournalAuditing
Volume31
Issue number4
DOIs
StatePublished - Nov 1 2012

Keywords

  • Audit quality
  • Client importance
  • Materiality decisions
  • Misstatements
  • Staff accounting bulletin no. 108

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Investors' response to revelations of prior uncorrected misstatements'. Together they form a unique fingerprint.

Cite this