Accounting Faculty Paper Accepted for Publication
November 14, 2017
BATON ROUGE – A trio of LSU Department of Accounting faculty collaborated on a paper that was accepted for publication in Auditing: A Journal of Practice & Theory. “Auditors and Disclosure Quality: The Case of Major Customer Disclosures” was written by Joseph Legoria, associate professor, Ken Reichelt, associate professor and Jared Soileau, assistant professor.
Legoria, Reichelt and Soileau show that both mandatory and voluntary disclosures of major customers in the Form 10-K filing is positively affected by the quality of auditors – specialists, larger accounting firms and larger offices. In other words, clients of higher quality auditors are more likely to comply with the mandatory disclosure requirement, and are also more likely to voluntarily disclose related information.
Publicly listed companies, with a market capitalization of $75 million or more, are required under Regulation S-K of the U.S. Securities and Exchange Commission, to file the Form 10-K filing every year, in accordance with onerous and complex regulations. The paper is noteworthy because little is known about how auditors affect the client’s decisions to comply with disclosure requirements of Regulation S-K, even though federal audit standards do not require auditors to advise their client. The authors learned that higher quality auditors will advise the client on how best to navigate through Regulation S-K, which is supported by empirical evidence, which are robust to tests of endogeneity. While researching the topic, Legoria hand-collected more 26,000 mandatory major customers disclosures and 34,000 voluntary disclosures. The current executive branch of the U.S. government advocates simplifying Regulation S-K.
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