The Effect of Prior Audit Experience on CFO Financial Reporting Aggressiveness

In this study, we investigate the financial reporting behavior of chief financial officers (CFOs) with prior audit experience. Our tests indicate that, on average, CFOs who were former auditors report less aggressively than CFOs without prior audit experience. Thus, the mindset that auditors develop during their time in public accounting – which should value ethical, 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. Auditors appear to adjust effort similarly, as audit fees are lower for clients with prior-auditor CFOs but increase as the CFOs' time away from auditing increases. Overall, our study offers important insights regarding how audit experience impacts the financial reporting behavior of top executives