Michigan State University Student Excellence in Research Award, 2012
Michigan State University Department of Residence Life Teaching Recognition, 2009
Indiana CPA Society Top Ten CPA Exam Score Award, 2004
Selected Publications
Bhaskar, L. S., Schroeder, J. H., and Shepardson, M. (2019). Integration of Internal Control and Financial Statement Audits: Are Two Audits Better than One? The Accounting Review, 94(2), 53-81.
Abstract
The quality of financial statement (FS) audits integrated with audits of internal controls over financial reporting (ICFR) depends upon the quality of ICFR information used in, and its integration into, FS audits. Recent research and PCAOB inspections find auditors underreport existing ICFR weaknesses and perform insufficient testing to address identified risks, suggesting integrated audits – in which substantial ICFR testing is required – may result in lower FS-audit quality than similar FS-only audits. We compare a 2007 – 2013 sample of small, U.S. public company firm-years receiving integrated audits (accelerated filers) to firm-years receiving FS-only audits (non-accelerated filers) and find integrated audits are associated with higher likelihood of material misstatements and discretionary accruals, consistent with lower FS audit quality. We also find evidence of (1) auditor judgment-based integration issues and (2) low-quality ICFR audits harming FS audit quality. Overall, results suggest an important potential consequence of integrated audits is lower FS audit quality.
Marshall, N.T., Schroeder, J. H., and Yohn, T. L. (2019). An Incomplete Audit at the Earnings Announcement: Implications for Financial Reporting Quality and the Market’s Reliance on Earnings. Contemporary Accounting Research, 36(4), 2035-2068.
Abstract
There has been a substantial increase, since 2004, in the number of firms that announce annual earnings before audit completion as opposed to after audit completion. In this study, we argue that earnings announced before audit completion are associated with lower financial reporting quality and investor perceptions that earnings are more likely to be overstated. Consistent with this expectation, we document that the market places more (less) weight on good (bad) earnings news for earnings announced after audit completion relative to earnings announced before audit completion. We continue to find this differential market response when we expand the returns window to include the 10-K filing date, suggesting that the differential response is not driven by investors’ temporary concerns about earnings revisions between the earnings announcement and the 10-K filing date or by differential GAAP disclosures in the earnings announcement, as suggested in prior research. Finally, as a direct test of financial reporting quality, we show that earnings announced with a completed audit are less likely to be restated in the future, are less likely to meet or beat expectations, and are associated with fewer income-increasing discretionary accruals than those announced with an incomplete audit.
Bhaskar, L. S., Hopkins, P. E., and Schroeder, J. H. (2019). An Investigation of Auditors’ Judgments when Companies Release Earnings before Audit Completion. Journal of Accounting Research, 57(2), 355-390.
Abstract
The majority of U.S. public companies release annual earnings prior to the completion of audit fieldwork. We investigate this phenomenon in a controlled experiment with audit partners and senior managers. We find that releasing earnings before completion of the audit pressures auditors to adopt the goals of management, thereby reducing the likelihood of post‐announcement audit‐adjustment recommendations. We also examine the effect of audit committee strength in improving auditors’ judgments after annual earnings are released. When audit committees are actively involved in accounting issues and proactively communicating with auditors—characteristics currently lacking in most audit committees—the negative effects on auditors’ judgments are completely mitigated. Our study provides evidence on potential unintended consequences of early release of earnings and the importance of investing in high‐quality audit committees to mitigate adverse effects of client pressures on audit judgment and financial reporting quality.
Arif, S., Marshall, N.T., J.H. Schroeder and T.L. Yohn (2019). A Growing Disparity in Earnings Disclosure Mechanisms: The Rise of Concurrently Released Earnings Announcements and 10-Ks. Journal of Accounting and Economics, 68(1), .
Abstract
We document a growing disparity in earnings disclosure mechanisms. Firms are increasingly disclosing earnings announcements (EA) concurrently with the 10-K filing instead of first issuing a ‘stand-alone’ EA. Firm adoption of concurrent EA/10-Ks is associated with lower investor sophistication, greater impediments to producing timely and reliable earnings information, and greater industry-level concurrent reporting. Concurrent EA/10-Ks differ from stand-alone EAs in that investors anticipate more information in the EA, disclosures are preempted by industry peer EAs, the market reaction is muted even when controlling for EA timing, and post-earnings-announcement drift is greater.
Hoopes, J. L., Merkley, K. J., Pacelli, J., and Schroeder, J. H. (2018). Audit Personnel Salaries and Audit Quality. Review of Accounting Studies, 23(3), 1096-1136.
Abstract
This study examines the relation between audit personnel salaries and office-level audit quality. We measure audit personnel salaries at the associate, senior and manager ranks for Big 4 audit offices from 2004 to 2013 using unique individual auditor level data obtained from the U.S. Department of Labor. We find that offices that pay lower salaries have a higher percentage of clients that experience restatements. In related analyses, we also find lower levels of audit quality when audit employees are paid less relative to other lines of service in accounting firms (tax, consulting, etc.). Finally, we document positive and significant associations between salary and fees, suggesting that audit offices pass some of the cost of higher labor onto their clients. Overall, our findings provide important initial evidence on the role of audit salary and its relation to audit quality and audit fees.
Schroeder, J. H., and Shepardson, M. (2016). Do SOX 404 Control Audits and Management Assessments Improve Overall Internal Control System Quality? The Accounting Review, 91(5), 1513-1541.
Abstract
We address whether SOX 404(b) internal control audits under two auditing standards regimes and SOX 404(a) management assessments are associated with improved internal control system quality, an important and largely unstudied potential benefit. In 2013, the PCAOB disclosed fifteen percent of inspected control audits were ineffective, suggesting the current control auditing standard may not be sufficient to induce implementation of high quality control systems. We use an indirect measure of internal control system quality – future unaudited accruals quality – to proxy for internal control quality because sustained internal control improvements should be exhibited in future quarterly financial reports unaltered by contemporaneous financial statement audits. We find internal control audits initially provided internal control quality benefits. After the 2007 auditing standards change, internal control quality deteriorated for ICFR audited versus unaudited firms. Finally, we find limited evidence that management assessments affect internal control quality. Results indicate recent PCAOB concerns may have merit.
Schroeder, J. H. (2016). The Impact of Audit Completeness and Quality on Earnings Announcement GAAP Disclosures. The Accounting Review, 91(2), 677-705.
Abstract
This study examines the role of the external audit in management’s decision about the amount of GAAP financial statement information to disclose in the annual earnings announcement. The earnings announcement is a key disclosure provided by public companies. Yet, there is no requirement that earnings announcements contain audited GAAP numbers; in fact, recent trends indicate that a majority of companies release earnings before the completion of year-end audit fieldwork. I predict and find that companies that wait until the audit is more complete at the earnings announcement date and receive higher quality audits provide more detailed balance sheet, cash flow statement and overall GAAP disclosures. I also provide evidence that complete audits and higher quality audits impact the information content of the earnings announcement. The combined results indicate that audit completeness and quality help facilitate more detailed earnings announcement disclosures and have implications for the equity market.
Allee, K. D., Lynch, D. P., Petroni, K. R., and Schroeder, J. H. (2015). Do Property Taxes Affect Real Operating Decisions and Market Prices for Crude Oil? Contemporary Accounting Research, 32 (2), 736-762.
Abstract
This study investigates the effect of personal property taxes (PPTs) on real business decisions. Consistent with tax avoidance, we posit that PPTs are associated with decreases (increases) in inventory prior to (following) calendar year-end assessment dates. We empirically test this prediction using monthly crude oil inventory data. We find that in locations where crude oil inventory is subject to taxation, total and refinery-level crude oil inventories are reduced prior to assessment dates and increased in the following period, when compared to locations with no tax. The results provide empirical evidence that PPTs play a role in the operating decisions of firms. We also examine the pricing implications of these tax driven changes in crude oil inventory and find that the market seemingly adjusts crude oil prices around assessment dates demonstrating that the market acts as if it understands these changes in crude oil inventory are not simply due to supply and demand effects.
Schroeder, J. H., and Hogan, C. E. (2013). The Impact of PCAOB AS5 and the Economic Recession on Client Portfolio Characteristics of the Big 4 Audit Firms. Auditing: A Journal of Practice and Theory, 32(4), 95-127.
Abstract
We examine the impact of PCAOB Auditing Standard No. 5 (“AS5”) and the economic recession on risk characteristics and degree of auditor/client misalignment in the publicly-traded client portfolios of Big 4 firms. AS5 and the economic recession both likely resulted in an increase in audit firm personnel capacity as well as a decline in current and future revenue prospects, leading to concerns that the Big 4 firms may pursue clients that present greater risk to the portfolio. We find that the overall portfolio in 2009 presents greater financial risk, attributable to the impact of the recession on continuing clients. A net decrease in audit and auditor business risks is also attributable to continuing clients over this period as increases for new clients are offset by reductions due to departing clients. Overall, the results, which should be of interest to regulators, indicate that Big 4 firms continued to balance their portfolio with risk in mind.
Edited on August 12, 2020
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