This paper investigates whether client importance affects auditor independence within the local offices of audit firms. Client importance is measured as the proportion of audit fees, non-audit service fees, or total fees that a distressed, public client contributes to the total public-client revenue earned by the individual audit offices. Auditor independence is measured as the auditor's propensity to issue a going-concern opinion. The paper focuses on changes in the relation between fee ratios and auditor reporting decisions from the pre-SOX (2001) to post-SOX (2003) period. In the pre-SOX period, I do not find statistically significant association between any of the fee ratios and the auditor's propensity to issue a going concern opinion. However, in the post-SOX period, I find evidence that higher audit fee and total fee ratios are positively associated with the auditor's propensity to issue a going concern opinion. That is, post-SOX, relatively more important clients are more likely to receive a going concern opinion. These results allay concerns that auditor independence is compromised for significant clients.

ABSTRACT We examine whether auditors exercise professional skepticism about management earnings forecasts when making going‐concern decisions. Using publicly issued management earnings forecasts as a proxy for earnings forecasts provided by managers to auditors, we find that management earnings forecasts are negatively associated with both auditors’ going‐concern opinions and subsequent bankruptcy. The weight auditors put on management forecasts in the going‐concern decision is not significantly different from the weight implied in the bankruptcy prediction model. Moreover, compared with the bankruptcy model, auditors assign a lower weight to management forecasts they perceive as being less credible, including those (1) issued by managers who issued optimistic forecasts in the previous two years, and (2) predicting high earnings increases or high earnings. Taken together, our evidence is consistent with auditors being professionally skeptical about management earnings forecasts when making going‐concern decisions.

ABSTRACT This study investigates whether auditors incorporate investor information demand when determining key audit matter (KAM) disclosures. We measure investor information demand using a unique dataset of investor inquiries submitted through investor interactive platforms (IIPs) established by the China Securities Regulatory Commission. At the topic level, we find that auditors are more likely to disclose a given topic as a KAM when investors raise more inquiries on that topic. At the aggregate level, a higher proportion of inquiries devoted to accounting issues is associated with both a greater number of KAMs and longer KAM disclosures. Importantly, following the introduction of KAM reporting, managers’ footnote disclosures become more aligned with heightened investor inquiries, reinforcing our interpretation that the documented effects reflect auditors’ responses to investor inquiries rather than merely mirroring managerial disclosure changes. Overall, our findings suggest that auditors incorporate investor information demand into KAM disclosures.

ABSTRACT External audits enhance the credibility of financial statements and are a cornerstone of capital market integrity. However, the growing and complex auditing literature poses challenges for researchers. This survey synthesizes and critically evaluates archival audit research published in top accounting journals from 1995 to 2025, organizing over 600 studies into three core areas: the audit market, audit quality, and audit personnel and processes. We offer new conceptual insights into the audit market, emphasizing that audit assurance is unobservable and that audit fee studies generally estimate reduced‐form models rather than separate demand and supply functions. On audit quality, we expand upon DeAngelo's definition to include the auditor's responsibility to assess ex ante risk. We suggest an alternative three‐dimensional definition of audit quality that is more closely aligned with professional standards. We also clarify common misconceptions arising from conflating audit quality with financial reporting quality. Finally, we review the growing literature on audit personnel and call for more research into underexplored roles of personnel in the early stages of the audit process. Our survey contributes by reframing key constructs, identifying limitations in common proxies, and suggesting future research directions to advance our understanding of how audits function and shape financial reporting outcomes.

This study examines whether PCAOB inspection reports are useful for signaling the risk of misstatements in future periods and the extent to which different types of audit deficiencies predict future misstatements. We find that, after the inspection report is issued, PCAOB‐identified audit deficiencies are positively associated with future misstatements for the audit firm's entire client portfolio. When we examine different types of deficiencies, we find that an auditor's failure to understand the client's accounting procedures or policies is the most detrimental type of deficiency for future reporting quality. We also examine the deficiency types for Big 4 versus non–Big 4 firms separately. The results show that an auditor's failure to understand the client's accounting procedures or policies is the only deficiency type that is positively associated with future misstatements for Big 4 firms. For non–Big 4 firms, however, future misstatements are predicted by an auditor's failure to understand the client's accounting procedures or policies, inadequate substantive testing, and inadequate going‐concern assessments. Our study has important implications given the concerns raised by auditors regarding the usefulness of PCAOB inspections.

This paper explores whether firms manage their earnings after stock splits to meet the raised expectations from the market due to the positive signal sent by the splits. We first document that post-split drift mainly exists in the first three months and is positively associated with post-split standardized unexpected earnings (SUE). However, the higher post-split SUE of split firms is associated with higher discretionary accruals and abnormally lower R&D expenses. This result is consistent with our hypothesis that split firms overstate their post-split earnings by manipulating accruals and reducing R&D spending. Moreover, post-split abnormal returns increase with discretionary accruals and R&D reduction for about six months and tend to reverse over longer horizons, especially for firms with negative pre-split SUE. Overall, our results indicate that the post-split drift is a short-term phenomenon and partly attributable to the earnings management after the splits.

The revelation of material negative events about a firm, including issues such as fraud, restatements, or internal control material weaknesses (ICMWs), may destabilize the firm’s corporate governance equilibrium as it works to remediate the event or effects thereof. Prior research investigates the association between the revelation of fraud and restatements and both board and management turnover. We extend that research, proposing and testing a conceptual model of the process that firms use to remediate negative events in general and ICMWs specifically, with a focus on the role of governance structure changes. Using a sample of 733 firms revealing an ICMW compared to 3,602 firms with unqualified internal control reports, results reveal a positive association between disclosure of ICMWs and subsequent turnover of members of boards of directors, audit committees, and top management. Focusing on the ICMW sample and comparing the 511 firms that remediate their ICMWs to the 222 firms that do not, results illustrate a positive association between remediation of ICMWs and improvements in the characteristics of boards of directors, audit committees, and top management. Data Availability: Data are publicly available from sources identified in the paper.

We hypothesize that high stock price levels impede informed trading on the stocks and reduce price informativeness. This is because uninformed trading is needed to facilitate informed trading, and high stock prices may impose budget constraints on uninformed investors. Indeed, we find, for high-price firms, (i) options to stock trading volume (O/S), an informed trading measure in options market, is higher, (ii) price informativeness about future earnings is lower, and (iii) investment sensitivity to price is lower. We also find these patterns reverse after stock splits, suggesting that firms can use splits to improve informed trading and enhance price informativeness.

Professional audit firms increasingly engage in Corporate Social Responsibility (CSR) activities. This paper examines the effect of audit firms' CSR activities on auditors’ reputation. We find that audit firms that engage in CSR experience an increase in the size of their client base compared to audit firms that do not engage in CSR. The effect is stronger for audit firms without existing reputation from a Big 4 brand name or industry specialization. We also find that clients that value CSR are more likely to hire audit firms that engage in CSR. Overall, our results suggest that CSR is an effective tool for audit firms to build their reputation in the marketplace.