Recent research finds that analysts' cash flow forecasts have meaningful financial reporting ramifications, but, to date, the identified effects are unlikely to yield meaningful cash flow benefits. This study examines whether analysts' cash flow forecasts encourage managers to enhance the firm's cash flow position through tax avoidance activities. We evaluate the change in cash tax avoidance after analysts begin issuing cash flow forecasts relative to a propensity score matched control sample of firms without cash flow forecasts. Consistent with analysts' cash flow forecasts encouraging tax avoidance that enhances the firm's cash flow health, we find a negative association between cash tax payments and analysts' cash flow coverage. Additional analysis suggests this association is driven primarily by strategies to permanently avoid rather than to temporarily defer tax payments and that increased cash tax avoidance activity represents a nontrivial component of the overall increase in reported operating cash flows after the initiation of analysts' cash flow coverage.

This study examines the effects of audit partner tenure and audit partner changes on internal control reporting quality for large U.S. not‐for‐profit ( NFP ) organizations. Regulators contend that audit partners lose their objectivity over successive audits, reducing audit quality. A large body of research has examined this issue, primarily in non‐U.S. jurisdictions, with mixed results. We examine the associations between audit partner tenure and audit partner changes and the incidence of reported internal control deficiencies ( ICD s), the quality of internal control reports (following PCAOB audit quality indicators), and the severity of reported ICD s. We find negative associations between audit partner tenure and the incidence of reported ICD s, the quality of internal control reports, and the severity of reported ICD s. Together, these findings indicate that internal control reporting quality deteriorates with audit partner tenure. However, we find no association between audit partner changes and internal control reporting, which is consistent with partners lacking client specific knowledge in their first year with a client. Finally, we find no association between either audit partner tenure or changes and the likelihood of remediation. Our findings contribute large‐sample U.S. evidence on the association between audit partner tenure and internal control reporting quality and provide useful information to government regulators, NFP boards charged with the oversight of the external auditor and internal controls, and NFP stakeholders.

Increasing financial statement complexity along with an intense focus on audit quality has created challenges for today's auditors. As a result, audit firms are increasingly relying on various specialists to help them perform their audits. To better understand why and how audit firms are using forensic specialists on their audits, we conduct an exploratory survey of experienced audit and forensic professionals. Our results suggest auditors are largely relying on forensic specialists to provide them with additional comfort beyond that obtained from traditional audit procedures. Furthermore, our results demonstrate that the usage of forensic specialists occurs primarily on riskier engagements, such as those involving restatements, initial public offerings, and investigations by regulators or law enforcement agencies. Although their involvement varies, forensic specialists assist audit teams by providing both guidance and direct assistance across the audit in areas including fraud brainstorming, design of procedures to test for fraud, and review of results of fraud‐related testing. In addition, our findings indicate forensic specialist involvement may lead to greater comfort as evidenced by the perceived identification by forensic specialists of additional audit findings related to material misstatements, financial reporting fraud, misappropriation of assets, and internal control deficiencies. Our results also reveal the majority of auditor and forensic specialist participants believe the value of forensic involvement on audits outweighs the associated costs, even in the absence of such additional audit findings. We conclude our paper by offering a theoretical discussion of our findings based on the audit comfort framework and suggestions for future research. In summary, our findings suggest that the discomfort some auditors feel in the contemporary auditing environment is leading to changes in the rituals that underlie traditional audits such that they seek comfort afforded them through forensic specialist involvement.

We investigate whether attitudes toward gambling help explain the occurrence of intentional misreporting. Similar to gambling, some financial reporting choices involve taking deliberate, speculative risks. We predict that in places where gambling is more socially acceptable, managers will be more likely to take financial reporting risks that increase the likelihood the financial statements will need to be restated. To test this prediction, we exploit geographic variation in local gambling attitudes and find that restatements due to intentional misreporting are more common in areas where gambling is more socially acceptable. This association is even stronger in situations where management is under greater pressure to misreport, including when the firm is close to meeting a performance benchmark, experiencing poor financial performance, or under investment‐related pressure. Furthermore, these results are robust to numerous tests to address omitted variables and endogeneity. Collectively, these findings suggest gambling attitudes help explain the incidence of intentional misreporting.