Terry L. Neal

• University of Tennessee at Knoxville

Inadequate testing of fair value accounting estimates, including goodwill, is often cited as an audit deficiency in PCAOB inspection reports, and, in some cases, these deficiencies have led to enforcement actions against the auditor. As a result of these issues, the PCAOB recently proposed a new auditing standard for fair value accounting. While th...

While substantial revisions to auditor reporting requirements are being implemented internationally, the impact of these reforms on financial reporting quality is unknown. We exploit the United Kingdom's recent auditor reporting changes and find that the UK's new reporting regime is associated with an improvement in financial reporting quality as p...

The elimination of goodwill amortization in 2001 brought about significant change in how companies are required to account for goodwill. This change in accounting also brought with it new challenges for auditors, namely evaluating the reasonableness of management's assumptions related to goodwill valuation. In addition to introducing technical chal...

During the past decade, new regulations have been adopted to improve audit committee effectiveness. Prior research has generally provided evidence in support of these regulations and suggests that a more independent and expert audit committee is more effective. We posit that CEO power reduces or even eliminates the improvements in audit committee e...

Recently, U.S. and international regulators have proposed significant changes to auditor and audit committee reporting with the stated intention of delivering more useful information to stakeholders. Whether new disclosure requirements achieve this intended benefit is unknown. We exploit the exogenous shock of the recent changes to auditor and audi...

While substantial revisions to auditor and audit committee reporting are being discussed internationally, including in the United States, the impact of these reforms on audit quality is unknown. We exploit the United Kingdom’s recent regulatory changes and find that the U.K.’s new reporting regime is associated with an improvement in audit quality...

Although "good" companies have incentives to signal their types by listing in the strict regulatory environment of the US, there have been an unprecedented number of recent accounting frauds by US-listed Chinese companies. We argue that the traditional bonding argument failed for US-listed Chinese companies due to a lack of audit quality and audit...

Prior literature’s inability to document an empirical relation between non-audit service fees and compromised auditor independence contradicts the significant and long-standing concerns expressed by regulators and the investing community. In this paper, we examine whether currently permissible non-audit services pose a threat to auditor independenc...

Since 2002, many firms have been required to alter their board of directors and committees to increase management monitoring. Kinney and McDaniel (1989) and Chhaochharia and Grinstein (2007) provide empirical evidence suggesting that investments in corporate governance may differ based on firm size, and that under-investing in monitoring may be mor...

This paper investigates the potential costs to investors of the Public Company Accounting Oversight Board’s (PCAOB’s) inability to conduct inspections of foreign audit firms. Specifically, we examine the stock market reaction of companies audited by non-inspected foreign audit firms to a series of disclosures by the PCAOB relating to its difficulti...

Research finds independent audit committees and audit committee financial experts are generally effective in monitoring the financial reporting and auditing processes. However, not all audit committees that appear in form to be independent are in fact actually independent, and not all financial experts with similar backgrounds and credentials are e...

Relatively few studies have examined the audit committee oversight process - the activities that link audit committee inputs and financial reporting outcomes. To study this process, we conducted extensive interviews with 42 U.S. public company audit committee members. We explore six audit committee process areas, offer insights into the state of au...

Accounting scandals and concerns about the quality of financial statements have led to many calls for improved audit committee effectiveness. Prior research indicates that audit committee independence is positively related to effective oversight of the financial reporting process. Unfortunately, prior research has not provided an answer as to how m...

SYNOPSIS: The Sarbanes-Oxley Act (SOX) requires the disclosure of whether the audit committee has a financial expert. We examine disclosures related to audit committee financial experts (ACFEs) in the first year that this disclosure requirement is in effect. We find that virtually all companies disclose whether an ACFE is on the audit commit-tee, a...

Recent corporate governance reforms that require audit committees to pre-approve audit and non-audit services increase audit committees' accountability to third parties for actual auditor independence and audit quality. Other SEC reforms mandate the disclosure of fees for auditor-provided services and are aimed at influencing investors' perceptions...

We study the relation between boards of directors and abnormal accruals.

Auditor industry specialization has generated significant interest in the academic community. However, a review of prior research suggests a lack of consensus as to how auditor industry specialization should be measured. This paper analyzes data from the 1989-1997 time period and: (1) examines the underlying concepts of specialization that are embo...

Statement on Auditing Standards No. 59 did not clearly specify the language to be used in the going concern (GC) report. Subsequent standards prohibited GC reports that failed to use the terms “substantial doubt” and “going concern” and that used conditional language. We find that: (1) most “subsequently prohibited” (SP) GC reports (those that fail...

This study examines the relation between audit committee independence and disclosure choice for financially distressed US firms. The tenor of both the financial statement notes and Management Discussion and Analysis (MD&A) is considered. For firms experiencing financial distress, there is a significant positive relation between the percentage of af...

This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (gr...

One important role of audit committees is to protect external auditors from dismissal following the issuance of an unfavorable report. We examine auditor dismissals following new going-concern reports that Big Six firms issued between 1988 and 1999. Our findings suggest that audit committees with greater independence, greater governance expertise,...

In response to recent criticisms of audit committee performance, new SEC and stock exchange rules require companies to prepare an audit committee charter and to publish the charter in their proxy statement at least once every three years. Audit committees also must disclose how they discharged their responsibilities during the year. We study the di...

This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (gr...

The purpose of this study is to examine whether differences in the corporate environments of Japanese and U.S. companies are associated with differences in the extent to which Japanese and U.S. managers engage in corporate myopic behavior. This paper empirically examines the management myopia issue by comparing the level of income smoothing that oc...

This study examines the relation between the composition of financially distressed firms' audit committees and the likelihood of receiving going-concern reports. For firms experiencing financial distress during 1994, we find that the greater the percentage of affiliated directors on the audit committee, the lower the probability the auditor will is...

This paper examines the relationship between board characteristics and external audit fees for Fortune 1000 companies. Competing arguments exist regarding the possible relationship between board characteristics and fees. One view is that a more independent, diligent, and expert board would be more concerned with effectively discharging its monitori...

We examine the relationship between the independence of the audit committee (from management) and auditor reporting behavior. More specifically, we consider the relationship between the percentage of audit committee members who are either insiders or ?grey? directors and the likelihood that the auditor issues a going- concern-modified report to fir...