Date of Graduation

8-2016

Document Type

Dissertation

Degree Name

Doctor of Philosophy in Business Administration (PhD)

Degree Level

Graduate

Department

Accounting

Advisor

Cory A. Cassell

Committee Member

Linda A. Myers

Second Committee Member

James N. Myers

Third Committee Member

Jonathan E. Shipman

Keywords

Social sciences; Assurance; Audits; Earnings management; Financial statements quality

Abstract

In this paper, I explore the determinants and consequences of the level of assurance that a bank selects. Using a sample of small, privately held U.S. (United States) financial institutions (banks), I find that two differing types of banks are more likely to purchase more assurance. First, larger banks that are experiencing growth purchase relatively more assurance than other banks. Second, more complex banks with lower returns on assets, losses, and higher leverage are more likely to purchase an audit than a lower level of assurance. This may indicate the influence of regulators on banks’ assurance purchasing decisions. I also find that financial reporting quality is better when banks purchase higher levels of assurance. Specifically, banks that purchase an audit of their financial statements have lower levels of discretionary loan loss provisions, are less likely to just meet or beat prior year earnings using discretion, and are less likely to just avoid a loss using discretion. Banks that purchase directors’ examinations have lower levels of discretionary loan loss provisions and are less likely to just meet or beat prior year earnings using discretion. In addition, I find some evidence that suggests that banks that purchase reviews and compilations also have better financial reporting quality than banks that purchase no external assurance services. My results should be of interest to regulators and other stakeholders as they consider the costs and benefits of audits in privately held financial institutions.

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