This paper extends the variance decomposition framework of Campbell [1991], Campbell and Ammer [1993], and Vuolteenaho [2002] to address the relative value relevance of accrual news, cash flow news, and expected‐return news in driving firm‐level equity returns. The extension is based on the Feltham‐Ohlson [1995, 1996] clean surplus relations. Using three models, this study shows that all three factors, accruals, cash flows, and expected future discount rates are value relevant. Moreover, accrual news is found to significantly dominate expected‐return news in driving firm‐level stock returns. Operating income news is also found to significantly dominate both expected‐return news and free cash flow news in driving firm‐level stock returns. Furthermore, after splitting net income into cash flow and accrual earnings components in the Vuolteenaho model, accrual earnings news and cash flow earnings news are found to equally drive firm‐level stock returns and to dominate expected‐return news. Further disaggregation of the data yields some evidence that accrual earnings news is a more important factor than cash flow earnings news in driving current stock returns. Overall, the three models indicate that changes in expected future accruals are a primary driver, if not the primary driver, of current stock returns.

Recent research asserts that an essential feature of good corporate governance is strong investor protection, where investor protection is defined as the extent of the laws that protect investors' rights and the strength of the legal institutions that facilitate law enforcement . The purpose of this study is to test this assertion by investigating whether these measures of investor protection are associated with an important role of good corporate governance: identifying and terminating poorly performing CEOs. Our tests indicate that strong law enforcement institutions significantly improve the association between CEO turnover and poor performance, whereas extensive investor protection laws do not. In addition, we find that in countries with strong law enforcement, CEO turnover is more likely to be associated with poor stock returns when stock prices are more informative. Finding that strong law enforcement institutions are associated with improved CEO turnover‐performance sensitivity is consistent with good corporate governance requiring law enforcement institutions capable of protecting shareholders' property rights (i.e., protecting shareholders from expropriation by insiders). Finding that investor protection laws are not associated with improved CEO turnover‐performance sensitivity is open to several explanations. For example, investor protection laws may not be as important as strong law enforcement in fostering good governance, the set of laws we examine may not be the set that are most important in promoting good governance, or measurement error in our surrogate for extensive investor protection laws may reduce the power of our test of this variable.

Most modeling and analysis of audit populations has been based on surprisingly little formal study of actual empirical evidence. The single major empirical investigation to date has been the pioneering work of Neter and Loebbecke [1975; 1977]. This study examined the behavior of many statistical procedures commonly used in auditing, based on simulated audit populations constructed by extrapolating characteristics of errors found in audits of four actual populations. Neter and Loebbecke made a thorough examination of the four audit populations and reported on both the shapes of the book value distributions and error characteristics including error rate, magnitude, and changes in both rate and magnitude as a function of book value. In spite of their limited number, these four populations represented considerable variety in terms of type of account, degree of skewness, error rate, and balance of errors between underand overstatements. The effective size of the empirical data base was greatly expanded by the authors' careful control of these error characteristics in creating simulated populations with varying error rates. A major conclusion of the study was that a number of widely used statistical procedures, particularly those adopted from the sample survey literature, can be seriously misleading in the auditing context. This conclusion concurs with that of Kaplan [1973], who based his analysis on

John G. Ramage, Abba M. Krieger, Leslie L. Spero, [Discussion of An Empirical Study of Error Characteristics in Audit Populations]: A Reply, Journal of Accounting Research, Vol. 17, Studies on Auditing-Selections from the "Research Opportunities in Auditing" Program (1979), pp. 111-113

Annual earnings, Time-series, Deflated earnings, Box-Jenkins model

This paper provides early evidence on the integration and impact of generative artificial intelligence (GenAI) in accounting at the accountant and task levels. Using survey data from 277 professional accountants, we document substantial heterogeneity in adoption patterns, perceived benefits, and concerns about GenAI. Using proprietary field data from an AI‐enabled accounting platform serving 79 small‐ and medium‐sized enterprises, we analyze over 200,000 transaction‐level records. We document that GenAI adoption is associated with significant productivity gains and systematic reallocation of effort away from routine data entry toward business communication and quality assurance tasks. GenAI use is also associated with improvements to financial reporting quality, evidenced by more granular ledgers and faster month‐end closing. Examining human–AI interaction, we find that accountants selectively intervene when AI confidence scores are low, consistent with complementarity between professional expertise and AI. A framed field experiment further shows that while AI assistance improves classification accuracy on average, reliance on non‐consensus AI recommendations can increase the risk of error. Overall, our findings highlight both the promise and the risks of GenAI in accounting and suggest that, in practice, AI is most effective as a tool that augments—rather than replaces—professional judgment.

We investigate whether Public Company Accounting Oversight Board (PCAOB) inspections affect the quality of internal control audits. Our research design improves on prior studies by exploiting both cross-sectional and time-series variation in the content of PCAOB inspection reports, while also controlling for audit firm and year fixed effects, effectively achieving a difference-in-differences research design. We find that when PCAOB inspectors report higher rates of deficiencies in internal control audits, auditors respond by increasing the issuance of adverse internal control opinions. We also find that auditors issue more adverse internal control opinions to clients with concurrent misstatements, who thus genuinely warrant adverse opinions. We further find that higher inspection deficiency rates lead to higher audit fees, consistent with PCAOB inspections prompting auditors to undertake costly remediation efforts. Taken together, our results are consistent with the PCAOB inspections improving the quality of internal control audits by prompting auditors to remediate deficiencies in their audits of internal controls.

This paper examines changes in the information content of earnings over the past three decades using the two metrics from Beaver [1968]: abnormal trading volume and abnormal return volatility. We find no evidence of a decline in the information content of earnings announcements over the past three decades, as measured by both abnormal trading volume and return volatility around quarterly earnings announcements. If anything, our results suggest an increase over time in the informativeness of quarterly earnings announcements. Variables reflecting changes in firm‐specific factors account for a portion of the observed increase.

Despite extensive research on the determinants of external audit fees, there is little empirical evidence on the effect of internal audit contribution on the external audit fee. Using a cross‐sectional regression model based on prior audit fee research, this study provides evidence that internal audit contribution is a significant determinant of the external audit fee. Further, a second model that provides evidence on the determinants of internal audit contribution is developed and tested. This second model indicates that internal audit contribution is influenced by internal audit quality and, conditional on the level of inherent risk, the availability of internal audit and the extent of coordination between internal and external auditors. These results are based on a unique data‐set comprised of publicly available data matched with survey responses from internal and external auditors affiliated with 70 non‐financial services Fortune 1000 firms. The sample includes all of the former “Big 6” international accounting firms and clients from twenty‐nine different industries.

This paper investigates how banks alter the timing and magnitude of transactions and accruals to achieve primary capital, tax, and earnings goals. Recent research, including Moyer [1990], Scholes, Wilson, and Wolfson [1990], and Collins, Shackelford, and Wahlen [1995], provides evidence that banks execute transactions and manage accruals to achieve some or all of these objectives. A common feature of these studies is the assumption that when managers make a particular accrual or transaction decision, all other decisions are fixed. We relax this assumption and allow such decisions to be determined simultaneously.