Determinants and Consequences of Assurance Purchases in Small U.S. Banks.

• In Event: Breakfast and Research & Education Table Forum
  In Roundtable Session: Table 5: Client Industry and Audit

Abstract

This paper explores the determinants and consequences of the level of assurance that a bank purchases. Using a sample of small, privately held U.S. banks, I find that two differing types of banks are likely to purchase more assurance. First, larger, growing banks purchase relatively more assurance than other banks. Second, poorly performing, complex banks are more likely to purchase an audit than a lower level of assurance. I find that financial reporting quality is higher when banks purchase higher levels of assurance. Specifically, banks that purchase an audit of their financial statements have lower levels of discretionary loan loss provisions, are less likely to just meet or beat prior year earnings, and are less likely to just avoid a loss using discretion. In addition, I find some evidence that banks that purchase lower levels of assurance also have better financial reporting quality than banks that purchase no external assurance.

Author

• Ashley W Douglass, Trinity University