In recent years, many companies have emphasized adjusted-GAAP earnings numbers in their quarterly press releases. While managers use different names to describe these nonstandard earnings metrics, the financial press frequently refers to them as “pro forma” earnings. Managers and other advocates of pro forma reporting argue that these disclosures provide a clearer picture of companies' core earnings. On the other hand, regulators, policymakers, and the financial press often allege that managers' pro forma earnings disclosures are opportunistic attempts to mislead investors. Recent evidence suggests that while many pro forma earnings disclosures are altruistically motivated, some may represent managers' attempts to portray overly optimistic financial performance. If this is the case, then less wealthy, less sophisticated, individual investors are arguably the most at risk of being misled. Consequently, this study investigates who trades on pro forma earnings information. Our intraday investigation of transactions around earnings announcements containing pro forma earnings information reveals that less sophisticated investors' announcement-period abnormal trading is significantly positively associated with the magnitude and direction of the earnings surprise based on pro forma earnings. In contrast, we find no association between sophisticated investors' trading and manager-reported pro forma information. Overall, our analyses and numerous robustness tests suggest that the segment of the market that relies on pro forma earnings information is populated predominantly by less sophisticated individual investors. This evidence is particularly relevant to standard-setters and regulators given that Section 401(b) of the Sarbanes-Oxley Act of 2002 and subsequent SEC regulations are specifically designed to protect ordinary investors from misleading pro forma information.

We study off-the-clock indiscretion accusations against corporate officers and directors and examine the extent, effectiveness, and context of auditors’ response. In the year that indiscretion allegations are first publicized, auditors charge higher fees and are more likely to resign. Auditors respond to allegations against both top executives and board members. Further, reactions are strongest when allegations demonstrate a lack of individual integrity and, separately, when the audit office has previously audited other similarly accused clients. Importantly, the resulting increase in auditors’ effort partially negates the association between indiscretions and lower financial reporting quality. However, auditors are primarily reactive, rather than proactive, and their response is stronger when the accused client is less important economically. These results suggest that company leadership’s off-the-clock indiscretions are signals to auditors of poor tone at the top, but the audit response is not uniform across all clients.

In the absence of random treatment assignment, the selection of appropriate control variables is essential to designing well-specified empirical tests of causal effects. However, the importance of control variables seems under-appreciated in accounting research relative to other methodological issues. Despite the frequent reliance on control variables, the accounting literature has limited guidance on how to select them. We evaluate the evolution in the use of control variables in accounting research and discuss some of the issues that researchers should consider when choosing control variables. Using simulations, we illustrate that more control is not always better and that some control variables can introduce bias into an otherwise well-specified model. We also demonstrate other issues with control variables, including the effects of measurement error and complications associated with fixed effects. Finally, we provide practical suggestions for future accounting research. Data Availability: All data used are publicly available from sources cited in the text.

Consulting service revenues recently surpassed audit revenues as the primary income source for the largest accounting firms. Since SOX limits the provision of consulting services to audit clients, this shift in revenues implies that firms and many clients likely choose between audit and consulting relationships. We explore the implications of this by developing and validating a measure of client-level consulting needs that can likely be fulfilled by accounting firms, which we refer to as “consulting opportunities.” As predicted, we find that consulting opportunities relate positively to auditor switches. We also find that consulting opportunities relate negatively to subsequent Big 4 auditor selection—the firms focusing most on consulting—but we fail to find evidence that consulting opportunities relate to deteriorations in audit quality. Together, our results suggest that legislation limiting firms' ability to deliver consulting services to audit clients may have reduced audit market concentration without discernably impacting quality. Data Availability: All data used are publicly available from sources cited in the text.

This study examines European stock market reactions to 16 events associated with the adoption of International Financial Reporting Standards (IFRS) in Europe. European IFRS adoption represented a major milestone toward financial reporting convergence yet spurred controversy reaching the highest levels of government. We find an incrementally positive reaction for firms with lower quality pre-adoption information, which is more pronounced for banks, and with higher pre-adoption information asymmetry, consistent with investors expecting net information quality benefits from IFRS adoption. We find an incrementally negative reaction for firms domiciled in code law countries, consistent with investors' concerns over enforcement of IFRS in those countries. Finally, we find a positive reaction to IFRS adoption events for firms with high-quality pre-adoption information, consistent with investors expecting net convergence benefits from IFRS adoption.

Focuses on a project by the American Accounting Association's Committees on Professional Examinations which evaluated the professional examinations for accountants. Objectives of the project; Methodology of the projects; Comparison of examinations and accounting curricula; Recommendations.

The article discusses several books about various topics. Some of the books are: "Deterring Fraud: The Internal Auditor's Perspective," by W. Steve Albrecht, Ketth R. Howe and Marshall B. Romney, "Management Control in Nonprofit Organizations," 3rd ed., by Robert N. Anthony and David W. Young, "Business Expansion Scheme," by Brian Armitage, "Bank Accounts: A World Guide to Confidentiality," by Edouard Chambost, translated by Peter Walton and Margaret Thompson, "The Tangled Web of Price Variation Accounting: The Development of Ideas Underlying Professional Prescriptions in Six Countries," by F.L. Clarke, "Fore-Runners of Realizable Values Accounting in Financial Reporting," edited by G.W. Dean and M.C. Wells, "Careers in Accounting," by Gloria L. Gaylord and Glenda E. Ried, "Bridges to Infinity: The Human Side of Mathematics," by Michael Guillen, "Bond Duration and Immunization: Early Developments and Recent Contributions," edited by Gabriel A. Hawawini, "Foundations: The Greenwood Encyclopedia of American Institutions," edited Harold M. Keele and Joseph C. Kiger, "The Impact of Taxes on U.S. Citizens Working Abroad," by Ernest R. Larkins.