Variability of Accounting Restatement Measurement in Audit Quality Research

• In Event: Auditing (Auditing and Information Quality)

Abstract

Research exploring financial reporting and audit quality often employs financial restatements as a proxy for low quality. A review of recent articles reveals three distinct variations in operationalizing the restatement variable: announcement date, first occurrence and all occurrences. Using a typical audit quality model and restatement data from 2003-2014 we find statistically distinct results from each of the three measurement choices evaluated. The results suggest an incorrect choice may subject research findings to reductions in explanatory power, risk of type 1 and type 2 errors, and altered direction (sign) of coefficients. Suggestions for applying the findings in evaluating prior work and conducting future research are discussed.

Authors

• R. Drew Sellers, Kent State University - Kent

• Michele Dawn Meckfessel, University of Missouri-St Louis

• Jadallah Azmi Jadallah, Kent State University - Kent

• Amirali Moeini Chaghervand, Kent State University