This paper investigates factors associated with audit firm positions on Auditing Standards Board issues during the three-year period ending during 1984. The major finding is that firms with relatively structured audit technologies tend to favor proposed statements while firms with relatively unstructured technologies do not. Audit firm size is not associated with firm position. Also, Big 8 firms favoring proposed statements have lower staff-to-partner ratios and concentrate less in auditing. The staff-to-partner ratio is negatively associated with technology. The results' implications for auditing profession organization studies and auditing and financial reporting research are investigated.

This paper analyzes economic characteristics of firms that correct previously reported quarterly earnings. The basic findings are that, relative to their industry, the sample (correcting) firms are smaller, less profitable, have higher debt, are slower growing, and face more serious uncertainties. Their average stock returns between the issuance of erroneous quarterly reports and their correction are negative. Also, correction disclosure frequently precedes SEC or stockholder suits against firm management. Results are consistent with predictions based on the economic interests of management and their auditors.

We use internal control deficiency (ICD) disclosures prior to mandated internal control audits to investigate economic factors that expose firms to control failures and managements’ incentives to discover and report control problems. We find that, relative to non-disclosers, firms disclosing ICDs have more complex operations, recent organizational changes, greater accounting risk, more auditor resignations and have fewer resources available for internal control. Regarding incentives to discover and report internal control problems, ICD firms have more prior SEC enforcement actions and financial restatements, are more likely to use a dominant audit firm, and have more concentrated institutional ownership.

Many U.S. private firms choose either a financial statement compilation or review rather than the higher assurance provided by an audit, yet little is known about these choices. We explore economic aspects of private firm choice of less-than-audit levels of assurance applied to GAAP-based financial statements. We find that CPA fees more than double for each increment in assurance. Commonly used financial reporting quality proxies are higher for both reviews and audits relative to compilations but are statistically indistinguishable on average between reviews and audits. Cost of debt is significantly lower for reviews than for compilations and significantly lower for audits than for reviews. Finally, we find that assurance level choices are associated with bank debt, trade credit, and potential internal information reliability and control concerns.