Principles-Based Accounting Standards and Auditor Expertise

• In Event: Auditing II

Abstract

Our paper investigates the impact of auditor expertise on accounting restatements associated with more flexible (principles-based) standards and less flexible (rule-based) standards. We find that superior auditor expertise, proxied by auditor industry specialists, has led to lower likelihood of restatements associated with principles-based standards. In contrast, this is no evidence to support that auditor expertise has reduced the incidence of restatements associated with rule-based standards. Our findings support and reinforce the standards setters’ and regulators’ arguments (e.g., FASB 2002; SEC 2003; SEC 2010) that auditor industry specialists’ professional judgment improves information quality or mitigates information asymmetry under more principles-based standards

Authors

• Hua-Wei Huang, National Cheng Kung University

• Yi-Hung Lin, National Cheng Kung University