An Empirical Investigation of Auditors’ Reaction to Rules vs. Principles Based Accounting Standards.

• In Event: Accounting Standards and Audit Quality

Abstract

This study examines the association between the rules-based accounting standards and auditors’ fees and likelihood of receiving going concern opinion. Our results suggest that auditors perceive firms relying more on principles-based standards to be less risky, which is why audit fee is lower. Furthermore, we determine that probability of receiving going concern opinion reduces as firms rely more on principles-based standards because these firms structure transactions that benefit the firm as opposed to achieving certain economic outcome. This research contributes to the debate about the nature of accounting standards. Our study is also relevant for investors and regulators as the results suggest that financial statements prepared using more principles-based standards better reflect the economic performance of the firm.

Authors

• Avishek Bhandari, Florida Atlantic University - Boca

• Babak Mammadov, Florida Atlantic University

• S. Hamidreza Vakilzadeh, Florida Atlantic University