Seminario académico de Finanzas y Contabilidad

06 de septiembre, 13:00 horas, sala P307, Facultad de Economía y Negocios

Título: Effects of Increasing Enforcement on Financial Reporting Quality and Audit Quality

Ralf Ewert y  Alfred Wagenhofer, académicos University of Graz


A widely held assumption in policy making and empirical research is that increasing the strength of public enforcement improves financial reporting quality and audit quality. This paper provides a more nuanced view. In a model with a manager who can engage in earnings management, a strategic auditor, and an enforcement institution, we show that enforcement and auditing are complements in a weak enforcement regime but can be substitutes in a strong regime. Although stronger enforcement always mitigates earnings management, stronger enforcement can improve or impair financial reporting quality and audit quality, depending on production risk, accounting system characteristics, and the scope of auditing relative to enforcement.