Defense Date

Spring 4-10-2017

Degree Type





Business Administration

Chair or Co-Chair

Divesh S. Sharma, Ph.D

Committee Member or Co-Chair

Vineeta D. Sharma, Ph.D


John L. Abernathy, Ph.D


Over the last decade, out-of-period adjustments (OOPAs) have risen in popularity in direct contrast to the simultaneous decreasing trend in restatements. This could indicate an improvement in financial reporting quality or could indicate the use of a type of stealth restatement for opportunistic purposes. These less prominent restatements are more likely to go undetected and would be an apt way to perpetuate opportunistic disclosure and to mitigate the likelihood of unfavorable market reactions.

The purpose of this study is to investigate (1) the association between non-audit services (NAS) and OOPAs, (2) the association between clawback provisions and OOPAs, and (3) the interaction of NAS with clawback provisions on OOPAs. An auditor providing NAS could create an economic bond with the client that weakens the auditor’s independence and enables management to opportunistically record an OOPA. Alternately, an auditor providing NAS could exhibit knowledge spillover preventing accounting misconduct and improving financial reporting quality. Another facet that could impact the trend in OOPAs is the initiation of clawback provisions. These provisions could be triggered by material restatements but not by OOPAs. This provides further incentive for managerial opportunism.

The research is an archival study with a sample consisting of U.S. publicly listed companies for the period 2007 through 2014. The final sample consists of 20,332 firm-year observations. The results show that NAS has a negative and highly statistically significant association with the existence of OOPAs. Supplemental analyses examining the type of NAS (tax NAS, audit-related NAS, and other NAS) further support these findings showing this same negative relationship. In addition, NAS is negatively and statistically significantly related to other types of stealth restatements. These findings indicate that NAS does not impair auditor independence. Rather, greater amounts of NAS contribute to knowledge spillover, which leads to higher financial reporting and audit quality.

I also find that firms with clawback provisions have a positive and highly statistically significant association with the existence and number of OOPAs. The same findings are indicated for clawback firms with previous restatements and clawback firms with future restatements. Supplemental analyses show these same relationships are indicated when other stealth restatements are the dependent variable. Overall, these results indicate that management may be opportunistically recording OOPAs. The interaction of clawbacks and NAS reveal that greater purchases of NAS shortens the length of the adjustment period, decreases the number of OOPAs, and lessens the likelihood of a revision restatement. The results raise interesting implications for regulators, executives, auditors, investors and future research.

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