WSU accounting professor published in two top journals

Santanu Mitra, an associate professor of accounting at the Wayne State University School of Business, recently had two papers accepted for publication in top accounting journals.

In January, Mitra’s co-authored paper, titled “The Effect of Auditing Standard No. 5 on Audit Report Lags,” was accepted for publication in Accounting Horizons, one of three association-wide journals published by the American Accounting Association. In May, Mitra had another co-authored paper, titled “Auditor’s Downward Switch, Governance and Accounting Conservatism,” accepted for publication in the Journal of Accounting Auditing and Finance.

The abstract of both papers can be found below.

According to Myles Stern, chair of the Department of Accounting at WSU, Mitra’s research is important both because it advances scholarly knowledge in the field of accounting and could have important implications for practitioners.

The Effect of Auditing Standard No. 5 on Audit Report Lags
Accounting Horizons (forthcoming)

The Auditing Standard No. 5 (AS5) introduced by the Public Company Accounting Oversight Board (PCAOB) in June 2007, requiring a top-down risk-based approach in auditing, is expected to improve audit efficiency and make the overall auditing process timelier by reducing audit report lags. This is critical for timely judgment and decision-making by financial statement users. Prior studies document that audit fees were lower under AS5 than under AS2, though audit quality did not change. We investigate the impact of AS5 on audit report lags over an extended period from 2006 to 2011 and find that audit report lags are lower in the AS5 years relative to the AS2 years. But this reduction is evident mostly for the firms with clean SOX 404 opinions. The presence of material internal control weaknesses (ICW) significantly increases audit report lags, but AS5 does not have any incremental moderating effect on report lags and the ICW relationship. The tests for the firms with company-level and account-specific ICW demonstrate identical results that the report lags continue to remain higher for the ICW firms. Our additional analyses show that the learning curve effect takes place rapidly in the earlier part of the AS5 period and audits continue to remain efficient in terms of reduced report lags in the latter part of the AS5 period. Overall, our results demonstrate that the top-down, risk-based approach under AS5 makes the audit process more efficient and timelier by decreasing audit report lags.

Auditor’s Downward Switch, Governance and Accounting Conservatism
Journal of Accounting Auditing and Finance (forthcoming)

This study demonstrates that the firms that switch from Big N auditors to non-Big N auditors use less accounting conservatism (a desirable attribute of financial reporting quality) in the post-switch year relative to the year before switch. Our analyses further show that the decline in conservatism is mainly evident for the firms that switch to smaller non-Big N auditors, but not when the firms switch from Big N to second-tier national auditors, such as BDO Seidman and Grant Thornton (BDO/GT).  Additionally, we find that the firms that experience switches from Big-N to smaller non-Big N audit firms exhibit less accounting conservatism in the post-switch year when they have relatively weaker corporate governance. We also observe that both auditor resignation and auditor dismissal events lead to a significant decline in post-switch conservatism especially among the firms with weaker governance mechanisms that experience switch to smaller non-Big N auditors. Furthermore, the smaller and younger firms with weaker governance adopt less conservatism in the post-switch period relative to the pre-switch period.  Our findings complement prior research in this area and have policy implications that the quality of audits provided by smaller auditors may continue to remain a matter of concern in the post-SOX and post-PCAOB periods, especially when the firms have weaker corporate governance.

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