Principles-based accounting standards and audit outcomes: empirical evidence

Myojung Cho () and Gopal V. Krishnan ()
Additional contact information
Myojung Cho: Pace University
Gopal V. Krishnan: Bentley University

Review of Accounting Studies, 2023, vol. 28, issue 1, No 5, 164-200

Abstract: Abstract The purpose of this study is to empirically examine the relations between audit outcomes and accounting standard design (principles-based vs. rules-based) for US firms. Considering that audit outcomes may vary with audit risk, which may differ under different accounting standards, we examine and find that audit risk and audit fees are lower when client firms rely more on principles-based standards. Next, we find that principles-based standards are associated with a lower likelihood of receiving a going concern opinion and with a shorter audit report lag. However, for firms that rely more on principles-based standards and have greater incentives to engage in earnings management, audit fees are higher. Collectively, our results inform the FASB, the SEC, and the PCAOB of the potential benefits of using principles-based standards with respect to audit outcomes and, more broadly, provide evidence on the role of accounting standard design in auditing.

Keywords: Principles-based standards; Audit fees; Audit risk; Going concern; Audit report lag (search for similar items in EconPapers)
JEL-codes: M41 M42 M48 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s11142-021-09639-z Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reaccs:v:28:y:2023:i:1:d:10.1007_s11142-021-09639-z

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1007/s11142-021-09639-z

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().