SYNOPSIS The National Pipeline Advisory Group encouraged accounting firms to offer comprehensive benefits that promote work-life balance and support family well-being. Accordingly, we pursue this study to examine whether firms’ comprehensive benefits packages support families with non-heteronormative caregiving responsibilities. To highlight differences in heteronormative and non-heteronormative caregiving responsibilities, we analyze autoethnographic vignettes from an author’s lived experience as a single parent providing foster care. We collect data on the type and breadth of family-supportive benefits offered by top accounting firms. We find that firms offer a broad range of family-supportive benefits, including parental and caregiver leave, dependent care resources, and employee mental health supports. However, caregiver leave was often inferior to parental leave benefits, dependent care resources were not always designed for the spontaneity required of foster and elder care, and mental health resources may not be sufficient for the challenges of modern caregiving. Our recommendations address noted deficiencies. Data Availability: Data were collected from publicly available sources as named in the manuscript.
SYNOPSIS ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, significantly alters the financial reporting for stock-based compensation by requiring the recognition of excess tax benefits and tax deficiencies in net income. We examine whether this change reduces the usefulness of earnings. We find that after ASU 2016-09, the stock market reaction to earnings news becomes weaker for firms affected by ASU 2016-09, contrary to the FASB Simplification Initiative’s explicit goal of reducing cost and complexity in financial reporting while maintaining or improving the usefulness of the reported information. The weaker market reaction is more prevalent among firms with more extensive stock-based compensation and greater stock price volatility. Additional analyses suggest the weaker market reaction is driven by increased earnings volatility and lower earnings persistence. Our results are important to the FASB for understanding the potential costs of simplification, especially as regulators appear poised to continue the trend of simplifying financial reporting. Data Availability: All data are available from the identified public sources. JEL Classifications: G10; M41; M48.
SYNOPSIS: In this study, we examine whether the quality of employer-sponsored health insurance is positively associated with financial reporting quality. We expect that higher quality health insurance helps to foster healthier employees and to attract and retain higher quality employees. These positive outcomes result in rank-and-file employees who are more capable of completing tasks, identifying errors, and providing more accurate reports to their superiors in a timely manner. Consistent with our predictions, we find that higher quality health insurance is associated with fewer financial restatements, fewer internal control weaknesses, and higher quality earnings. These findings are robust across several tests designed to mitigate endogeneity concerns. Our findings offer important practical implications for firms, investors, and regulators regarding the cost-benefit analysis of investments in high-quality healthcare insurance. Our study also adds to the academic literature examining the importance of rank-and-file employees to the financial reporting process.
SYNOPSIS: This paper examines how general counsels (GCs) in top management influence the use and timing of changes in accounting estimates (CAEs), an important but underexplored area in financial reporting. We provide evidence that when pre-CAE earnings narrowly miss analyst forecasts, firms with a GC in top management (GC firms) are more likely than non-GC firms to use income-increasing CAEs to meet or beat earnings expectations. These results are more pronounced for firms with weak integrity cultures, low analyst following, and non-industryspecialist auditors. We also find that in GC firms, post-CAE earnings are less predictive of future cash flows, suggesting a decline in earnings informativeness. Overall, our findings are consistent with GCs shaping the exercise of reporting discretion within GAAP rather than solely serving a gatekeeping function, highlighting how legal expertise at the executive level influences both the credibility and informativeness of reported earnings.
SYNOPSIS The political, academic, and practical significance of corporate tax-motivated income shifting raises important questions related to this complex tax planning strategy: (1) Is income shifting prevalent in our global economy? (2) What firm conditions and characteristics facilitate income shifting? (3) What nontax costs constrain income shifting? (4) What are the unintended consequences of income shifting? In this paper, we integrate 35 years of empirical research on multinational income shifting within the context of the Scholes-Wolfson tax planning framework to evaluate existing evidence addressing these questions. We then connect these findings with practice and policymaking and discuss opportunities for future research. JEL Classifications: H26; M48.
SYNOPSIS: For a broad sample of SEC registrants during 2010-2024, we find that reporting complexity linked to possibly inefficient aggregation and disaggregation in the Statement of Cash Flows (SCF) is associated with decreased decision usefulness of SCF information. We measure SCF reporting complexity as the number of monetary XBRL tags on the face of the SCF (Itemization Complexity) and the percent of SCF lines whose wording indicates the amount results from combining items (Aggregation Complexity). Controlling for business complexity and balance sheet and income statement reporting complexity, we find that both SCF reporting complexity measures are generally linked to diminished decision usefulness for analysts (using forecast errors and dispersion), and for investors (using valuation relevance of cash flows). These results vary across the three SCF sections and apply to both financial and nonfinancial firms. Our results provide new evidence about complexity in the presentation of cash flow information.
This paper presents a comprehensive set of evidence on the evolution of International Financial Reporting Standards (IFRS). It reports that IFRS grew in guidance, exceptions, and length over the years through the issuance of new IFRSs to replace International Accounting Standards and Interpretations, and through IFRS amendments. Yet, the International Accounting Standards Board (IASB) and the Interpretations Committee (Committee) maintained a principles-based approach to standard-setting. Consistent with this, the IASB specified the underlying principles and provided guidance in successive IFRSs to help preparers apply them. Further, the Committee and the IASB declined to develop Interpretations and amend IFRS, respectively, in response to constituent requests when they believed IFRS already provided sufficient guidance. Finally, the growth in IFRS guidance, exceptions, and length was due to constituent demands during the due process, convergence projects, the Global Financial Crisis, interest rate benchmark reforms, COVID-19, unclear and inconsistent IFRS requirements, and insufficient guidance.
SYNOPSIS: In 2023, the PCAOB announced that it would examine how auditors evaluate their client's cybersecurity-related materiality judgments and compliance with the SEC's enhanced cybersecurity disclosure rules. These rules require decision-makers to think about materiality more broadly than what is typically required in financial reporting contexts where the focus is on direct financial statement impacts. We interview auditors to examine how they perceive their role with respect to cybersecurity and the factors they consider when making cybersecurity-related materiality judgments. We find that, relative to auditors interviewed in 2023, auditors interviewed in 2025 were more likely to consider factors beyond those having relatively immediate, direct, and easily quantifiable financial statement impacts. However, we also find that auditors continue to experience uncertainty about how to incorporate qualitative factors into their cybersecurity-related materiality judgments. We discuss implications for audit firms, regulators, and future research.
We examine how auditor-sharing between group-affiliated IPO firms and their listed affiliates affects IPO audit quality and underpricing. Using Chinese IPOs from 2001 to 2021, we find that common auditors lead to lower IPO audit quality and higher underpricing, especially when signing audit partners are also shared. Further, listed affiliates' annual audit quality declines after their auditor undertakes IPO audits for other group firms. However, when the shared auditor is a top ten firm, the signing partner is an industry specialist, or a top-tier underwriter is involved, shared auditors enhance audit quality and reduce underpricing, indicating that knowledge spillover can outweigh agency costs. Additionally, IPO firms sharing auditors with group affiliates perform worse in the long term. Overall, auditors' economic dependence on group clients compromises auditor independence, raising concerns about shared arrangements and suggesting the need, in some instances, for stricter oversight of auditors serving interconnected clients.
SYNOPSIS: This perspective addresses the growing need for credible, decision-useful approaches to assessing the financial impact of physical climate risk in accounting. Doing so requires accounting to expand its evidence base to include global climate models (GCMs), the sole source of information about how the climate will change. Because future climate outcomes depend on complex physical and social system interactions, even the most advanced models generate evidence that, although indispensable, is incomplete and uncertain at business-relevant scales. When these limits go unrecognized, climate model outputs can be misunderstood or misapplied, producing unreliable information that poses risks to preparers, auditors, and the wider financial system. In response, this perspective develops four principles for the responsible use of climate model evidence in accounting, providing practical guidance to preparers, auditors, market participants, and standard setters on how decision-useful information can be developed.
SYNOPSIS: In 2019, a new form of environmental bonds came on the scene. In this form, the coupon rate paid to investors would be either higher or lower than the market, depending on meeting specified environmental and social targets. The adjustment would be an increase in the coupon-i.e., step-up-if the borrowing entity fails to meet the specified targets, or a step-down if the borrowing entity succeeds in meeting the target. The step-up is a penalty for failure, whereas the step-down is a reward for success. Empirically, most companies issuing sustainability-linked debt elect to use the step-up contingency. This paper shows that the step-up provision is an embedded derivative1 that should be bifurcated and accounted for separately. This paper presents cases of six companies that disclose the specific rates of the step-up provisions. This is followed by proposing an accounting procedure using data for one of the cases (Enbridge, Inc.).
SYNOPSIS: Local financial capability (LFC) reflects the financial expertise and investment activity of firms' local labor pool and stakeholder base. Based on the resources-based theory, we expect firms headquartered in areas with high LFC, measured using publicly available tax data, to be associated with better investment outcomes. We find a positive association between high LFC and investment efficiency that is consistent with both a direct labor pool and an indirect stakeholder effect. We find that accounting and finance occupational intensity, as opposed to educational intensity, explains the overall association, differentiating our measure from those used in prior studies. We also show that high LFC is positively associated with future firm-level returns on capital investment. Our LFC measure provides practitioners with a unique way to identify pools of financially capable capital investment funders or internal investment decision-makers.
SYNOPSIS: Audit academia faces a defining moment. Rapid advances in artificial intelligence (AI), persistent questions about research relevance, and growing scrutiny of higher education make it impossible to defer a clear articulation of audit academia's role. This paper argues that audit academia's enduring value does not lie in competing with AI, mirroring practice, or continuing by inertia. It lies in embracing its role as a meta-profession-one that intentionally guides the audit profession by enhancing audit practice, legitimating audit services, and instructing new auditors in service of the public interest. Drawing on professional theory, the paper clarifies how these three interdependent functions provide value that audit firms, regulators, and AI cannot fully supply. The paper concludes with a call for audit academia to lead deliberately-or risk being left behind.
SYNOPSIS: The rapid adoption of AI-enabled automated decision-making (ADM) in accounting raises ethical risks around privacy, bias, and accountability. Although prior literature and regulatory frameworks have addressed these issues conceptually, little is known about real-world mitigation strategies deployed by practitioners. Drawing on 13 semistructured interviews with senior accounting professionals from banking, public accounting, finance, IT, retail, and health care in the United States, Singapore, and Indonesia, this study reveals cross-country and cross-industry patterns and gaps in ADM risk mitigation. Our findings show that practitioners emphasize regulatory compliance and general governance (e.g., data classification and training), but they show limited use of localized technical tools (e.g., datasheets, XAI, model and system cards) and elicit minimal stakeholder feedback (especially concerning impacts on less-advantaged groups). Applying Rawls' distributive justice principles highlights these gaps and also offers a novel assessment lens. We propose a practical Rawlsian-inspired framework to guide accountants toward more equitable ADM practices.
SYNOPSIS Private equity investors have recently begun acquiring stakes in public accounting firms, both small and large. The structure that enables these investments is called an alternative practice structure (APS), a mechanism devised in the 1990s to permit “consolidators” to acquire equity interests in public accounting firms. This paper investigates the antecedents of private equity investment in U.S. CPA firms, including audit companies, accounting firm merger and acquisition activity during the 20th century, and the profession’s decision to allow non-CPA ownership of CPA firms. We demonstrate that modern private equity investment represents a return to an operating model the CPA profession previously abandoned, and we offer important historical insights—including a review of private equity investment in the healthcare profession—into the risks, implications, and regulatory challenges presented by these recent events.
SYNOPSIS: This study examines how generative artificial intelligence (Gen AI) is currently used in professional tax practice and how tax professionals assess its value and limitations. Drawing on 18 semistructured interviews with tax and tax-technology professionals, we document that Gen AI is already supporting core tax activities such as research, issue identification, workpaper preparation, and compliance diagnostics. We find that Gen AI is primarily used as a reference and copilot tool to support statutory interpretation and exploratory analysis, rather than to automate tax judgments or replace professional expertise. Although adoption is driven by efficiency and competitive pressures, tax-specific concerns, such as accuracy, documentation, regulatory scrutiny, and liability, constrain its use. Consequently, participants emphasize human oversight and restrict autonomy. Participants anticipate Gen AI to reshape how tax work is performed rather than to displace tax professionals. These findings provide timely insights into the evolving role of Gen AI within the tax function. Data Availability: Interview transcripts are not publicly available due to participant confidentiality agreements, but anonymized excerpts supporting the findings are included in the manuscript.
SYNOPSIS:Academic research can inform policy, enforcement, and rulemaking at the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). We argue that experimental accounting research is particularly well-suited to provide rigorous, causal evidence on issues central to these regulators' missions. We review existing financial experimental studies relevant to securities regulation and classify them according to the SEC's divisions and offices and FINRA's oversight functions. This framework highlights where financial experimental evidence is relevant to regulatory activities and can help the SEC and FINRA identify research aligned with specific mandates. We also identify opportunities for future research and offer practical guidance to academics on communicating the relevance of their work, with the goal of strengthening the connection between research and securities regulation.
The Dodd-Frank Act expanded regulation of credit rating agencies (CRAs) and compelled them to tighten rating standards. We investigate how the stricter standards affect issuers' financial reporting practices. On one hand, issuers may be more likely to engage in financial reporting manipulations to maintain their credit ratings. On the other hand, increased due diligence by CRAs may prompt issuers to report honestly. We find that the Act increases the likelihood of issuers' meeting analyst forecasts and avoiding reporting internal control weaknesses. This effect is more salient for issuers with higher debt dependence and higher costs of real activities management and weaker for issuers with higher costs of reporting manipulation. We find some evidence that these reporting maneuvers help prevent rating downgrades. Overall, we document the causal effect of credit rating market dynamics on corporate reporting incentives, and our study informs an unintended consequence of the Act.
In the "war for talent," large accounting firms have invested considerable resources into employee talent, yet we know little about how specific talent policy features affect audit outcomes. Economic theory predicts policies that alter firm norms can be more impactful to firm performance. Therefore, I investigate whether the adoption of one initiative with a salient feature that normalizes policy use, equalized parental leave, is associated with higher audit quality. Using a difference-in-differences approach, I find that audit quality improves after equalized leave adoption and that this is moderated by office-level employee demographics that reflect work-family conflict. I also use hand-collected employee job reviews to show that improved job satisfaction is one mechanism that drives these findings. This study informs academic literature and practitioners on the importance of one aspect of firm culture, builds on broader literature of economic impacts of paid family leave, and highlights one effective talent management strategy.
SYNOPSIS: This paper provides an overview of the rise of private equity (PE) investment in public accounting firms, a development that is reshaping the structure, operations, governance, and identity of the public accounting profession. We describe regulatory and structural changes enabling PE investment and examine the factors that make public accounting firms attractive to PE. Although PE investment offers solutions to some of the profession's current challenges, it raises significant concerns about professional independence, cultural shifts, and the sustainability of PE-driven transformations. We believe it is essential that the obligation to serve the public interest remains at the forefront of the audit profession. Finally, we propose a research agenda grounded in the Statement on Quality Management Standards No. 1 issued by the American Institute of Certified Public Accountants' Auditing Standards Board to examine whether and how these investments can coexist with the values that have long distinguished public accounting.
