We study the effects of the disclosure of critical audit matters (CAMs) on an auditor's audit effort and an investor's scrutiny effort decisions, as well as on investment efficiency. Both the auditor and the investor can prevent a bad investment by respectively auditing and scrutinizing the...

This paper examines how the relative timing affects the quality of financial reports in a staggered reporting system. We show that the audit quality of the leader firm exceeds that of the lagger. Investment efficiency also differs systematically across firms depending on the relative reporting...

Eliminating joint and several liability and the American legal cost allocation rule have been singled out to be the two most needed legal reforms by the major accounting firms. Some remedies have been proposed by the accounting profession and the legal community. This paper develops a model to...

Major accounting firms in the United States have singled out elimination of joint and several liability as one of the most needed legal reforms in the country. The recent legislation of the Private Securities Litigation Reform Act of 1995 replaced joint and several liability with proportionate...

New internal control reporting (ICR) requirements under the Sarbanes-Oxley Act of 2002 (SOX) imposed affirmative duties on managers and auditors to evaluate and attest to the effectiveness of internal controls. This paper studies the role of ICR regulation in alleviating accounting manipulation....

This paper analyzes the optimal design of compensation contracts in the presence of earnings management incentives, and its interplay with investors' information acquisition decisions. We consider a setting in which compensation contract is based on both accounting earnings and stock price when...

The joint provision of audit and non-audit services by audit firms to their audit clients has posed a threat to auditor independence. To mitigate the independence problem, the U.S. Securities and Exchange Commission (SEC) issued a regulation (SEC 2003) that prohibits audit partners from...