Loss underreporting and the auditing role of bank exams

Using a unique set of banking data containing both originally-reported and subsequently-revised financial variables, we study accounting restatements. Our results indicate the worse a bank's financial condition, the more likely it is for originally-reported data to understate financial losses....

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Bibliographic Details
Published in:Journal of financial intermediation 2003-04, Vol.12 (2), p.153-177
Main Authors: Gunther, Jeffery W, Moore, Robert R
Format: Article
Language:English
Subjects:
Accounting restatements
Auditing
Bank exams
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Summary:Using a unique set of banking data containing both originally-reported and subsequently-revised financial variables, we study accounting restatements. Our results indicate the worse a bank's financial condition, the more likely it is for originally-reported data to understate financial losses. Also, we find supervisory exams have an important role in uncovering financial problems and prompting accounting restatements to correct loss underreporting. While revisions are directly related to financial difficulties, exam-based restatements are evident at even the earliest stages of deterioration, indicating substantial accounting misstatements—at both banks and other types of companies—can occur well outside severe business circumstances.
ISSN:1042-9573
1096-0473
DOI:10.1016/S1042-9573(03)00015-9