Analysts' cash flow forecasts, audit effort, and audit opinions on internal control

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

13 Scopus Citations
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Original languageEnglish
Pages (from-to)635-664
Journal / PublicationJournal of Business Finance and Accounting
Volume42
Issue number5-6
Online published14 Feb 2015
Publication statusPublished - Jul 2015

Abstract

We examine the economic impact of analysts' cash flow forecasts by looking at how external auditors respond to financial analysts' issuance of cash flow forecasts. Using a differences-in-differences approach, we find that financial analysts' initiation of cash flow forecasts leads to reduced auditor fees and audit report lags. Moreover, after cash flow forecast initiation, firms report fewer Section 404(b) internal control weakness disclosures. These findings suggest that cash flow forecasts constrain earnings manipulation and improve management accounting behavior, thereby reducing inherent and control risk and strengthening firms' internal control over financial reporting.

Research Area(s)

  • Analysts' cash flow forecasts, Audit fee, Audit lag, Internal control weakness