John L. Abernathy

Audit Committee Expertise and Financial Analysts’ and Investors’ Ability to Anticipate Future Earnings

One of the important attributes of high quality accounting information is its ability to aid financial statement users in forming expectations about the firm’s future earnings. Prior research finds that accounting financial expertise of the audit committee is associated with higher financial reporting quality. We extend the literature by examining the association between audit committee expertise and security analysts’ and investors’ ability to anticipate future earnings. We find that analyst earnings forecasts of firms with an audit committee member with accounting financial expertise are more accurate and less dispersed. These associations tend to be stronger in weaker governance firms. We also find that audit committee expertise is associated with a more informative stock price for firms weaker governance. We do not find a significant association between non-accounting financial expertise and attributes of analysts’ forecasts or earnings informativeness. These findings contribute to our understanding of the role of accounting expertise in audit committees.

Literature review and research opportunities on credibility of corporate social responsibility reporting

Purpose - The purpose of this paper is to identify and synthesize the current academic literature on emerging trends to increase CSR reporting credibility. Design/methodology/approach - This paper synthesizes literature on emerging trends to increase CSR reporting credibility from the past ten years, focusing mainly on the most recent five years, by searching ABI/Inform and Business Source Premier for academic papers containing the following keywords: Corporate Social Responsibility (CSR) Reporting, CSR, Sustainability, and Social Responsibility. Findings - This paper identifies four relatively unexplored trends to improve CSR credibility: CSR assurance, integrated reporting, CSR reporting standards, and CSR regulation. Research limitations/implications - This study will be of use to academic researchers to facilitate research and discussion on the credibility of CSR disclosure. Practical implications - Regulatory agencies, boards of directors, customers, suppliers, and investors are increasingly using CSR information for decision making; therefore the credibility of the information is important. Originality/value - Much of the extant research investigating CSR has focused on financial performance metrics. The study synthesizes the recent CSR literature, including some interdisciplinary research focusing on emerging accountability trends in reporting. The authors identify several research opportunities that will enhance the authors’ understanding of CSR reporting.

Is There a Relation Between Residual Audit Fees and Analysts’ Forecasts?

We examine the relationship between residual audit fees and the ability to predict future earnings. Recent research suggests that residual audit fees contain information about accounting quality. However, residual audit fees could either represent high accounting quality or a risk premium for low accounting quality. We extend this literature by providing evidence that residual audit fees are indicative of a lower quality information environment which has a negative impact on investors’ ability to anticipate future earnings. Specifically, we first show that residual audit fees are negatively associated with the ability of current earnings to predict future earnings. Furthermore, residual audit fees are negatively associated with analyst forecast accuracy and positively associated with the dispersion in analyst forecasts. Overall, our results are consistent with the notion that residual audit fees are indicative of poor earnings quality, and that this lower quality manifests itself in a lower quality information environment for investors and analysts.