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Study links accounting expertise to misstatement risk

Tammy Whitehouse | October 30, 2018

Accounting expertise coupled with high levels of executive compensation can increase the risk of misstatement in financial reporting, according to a new academic study.

Where chief executives, including finance officers, have experience as partners or managers at audit firms and where they have incentives to misreport, the likelihood of misstatement in financial statements is elevated, according to research by three accounting professors across 10 years of reports by more than 3,000 public companies. The authors conclude executives with experience at audit firms can use that experience to hide misstatements or avoid adjustments when auditors find misstatements.

The finding is somewhat contradictory to the movement touched off by the Sarbanes-Oxley Act to require more accounting expertise in the C-suite and among audit committees...

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