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Analysts' cash flow forecasts, audit effort, and audit opinions on internal control
We examine the economic impact of analysts’ cash flow forecasts by looking at how external auditors respond to financial analysts’ issuance of cash flow forecasts. Using a differences-in-differences approach, we find that financial analysts’ initiation of cash flow forecasts leads to reduced auditor fees and audit report lags. Moreover, after cash flow forecast initiation, firms report fewer Section 404(b) internal control weakness disclosures. These findings suggest that cash flow forecasts constrain earnings manipulation and improve management accounting behavior, thereby reducing inherent and control risk and strengthening firms’ internal control over financial reporting.
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Journal
Journal of business finance and accountingVolume
42Issue
5-6Pagination
635 - 664Publisher
John Wiley & SonsLocation
Chichester, Eng.Publisher DOI
ISSN
0306-686XLanguage
engPublication classification
C1.1 Refereed article in a scholarly journal; C Journal articleCopyright notice
2015, John Wiley & Sons LtdUsage metrics
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