Download This Paper Open PDF in Browser Add Paper to My Library Share: Permalink Using these links will ensure access to this page indefinitely Copy URL Copy DOI

Due to their primary responsibilities over the financial reporting process, chief financial officers (CFOs) accumulate critical knowledge, and therefore power, within organisations. We examine whether such powerful CFOs use their influence to increase or decrease audit quality. Using a wide range of proxies for audit quality and a comprehensive measure of CFO power, we find that powerful CFOs are associated with lower levels of audit quality, suggesting that powerful CFOs pursue an agenda of self-interest. Our results are robust to alternative specifications of our variables, including endogeneity. As a result of our findings, we contribute not only to the academic literature but also provide useful research outcomes, such as aiding with legislation to strengthen corporate governance structures within firms to monitor such powerful CFOs. As a result of primary responsibilities over the financial reporting process, chief financial officers (CFOs) accumulate critical knowledge, and therefore power, within organisations. We examine whether such powerful CFOs use their influence to increase or decrease audit quality. we find that powerful CFOs are associated with lower levels of audit quality suggesting that powerful CFOs pursue an agenda of self-interest.

We examine links between corporate cash holdings and types of CEO power, and how these affect firm performance, using agency and stewardship theories to distinguish two types of CEO power: one attributable to the CEO position, and one attributable to CEO personal characteristics. Measured as indices, we find positive associations with cash holdings for both types of power, individually and in combination, but only positional power with higher cash holdings is positively associated with firm performance. Our findings are shown to be robust and suggest that scrutiny of cash holdings by CEOs with high personal power may be prudent.

We investigate whether audit partners with multiple clients are able to complete their audits in a timely fashion, an important but largely unexplored area of academic research. One view is that having multiple clients increases the knowledge and experience of the audit partner resulting in a more efficient and therefore, quicker audit. On the other hand, having multiple clients may over-burden an audit partner resulting in a slower audit process and longer completion times. We find that audit partners with multiple clients take longer to complete their annual audit. More importantly, we also find that companies with busy auditors who take longer to complete their audits also have poorer levels of financial reporting quality. Additionally, in terms of conse-quences for busy auditors, firms with lengthy audit report lag switched their auditors the next year suggesting that busy audit partners may lose clients if their workload is excessive and they are not able to maintain audit quality. Our results are robust to alternative measures for both audit report lag and audit partner busyness and a range of endogeneity tests. We also undertake simultaneous quantile regression to assess changes in audit report lag depending on the number of audit clients per partner where we find preliminary evidence of a knowledge spill-over effect. Consequently, our results have implications for companies, audit firms, regulators and other key stakeholders.