Incorporation and the audit market

Article Abstract:

The effects of permitting auditors to reduce their liability via incorporation are evaluated. A model integrating the audit market with the market for audited companies is developed and used to predict that financially incapable auditors with unrestricted liabilities enter other markets or make less profits from their services. Employed auditors who make substantial earnings incorporate and remove wealth from their employers. The model was also used to explain why auditors approach incorporation from a different perspective. The model also explains why income-sheltering tools are inferior substitutes for incorporation.

Standards, Accounting and auditing, Accounting, Auditing, Economic research, Incorporation

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The economic determinants of accounting choices: the unique case of equity carve-outs under SAB 51

Article Abstract:

The choices of parent firms in reporting gains from the spin-off of subsidiaries take advantage of the provisions of the Securities and Exchange Commission's Staff Accounting Bulletin No. 51. Parent firms leverage unexpected write-offs in the carve-out year, the carve-out gain size and unexpected future earnings in terms of equity, net income choices and tax and no-tax choices. The decision on which accounting procedure to use for reporting the gains in the spin-off is 78% based on the equity/net income options and 73% based on tax/no-tax options.

Reporting & Disclosure, Economic aspects, Corporations, Corporation reports, Company reports, Disclosure statements (Accounting)

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