Defense Date

Fall 9-8-2022

Degree Type


Degree Name



Business Administration

Committee Chair/First Advisor

Dr. Divesh S. Sharma

Committee Member or Co-Chair

Dr. Marshall A. Geiger


Dr. Qi (Flora) Dong


Publicly traded firms commonly supplement their audited GAAP-based financial statements with non-GAAP measures of firm performance. These measures are used by various stakeholders, including investors, analysts, lenders, and firms’ compensation committees. The permissive nature of non-GAAP reporting makes it susceptible to managerial opportunism and potentially misleading to investors. For instance, unaudited non-GAAP metrics are often derived by excluding noncash items, such as depreciation or stock-based compensation expense, from a firm’s GAAP numbers. Consequently, managers may utilize non-GAAP exclusions to boost pro forma earnings.

Stakeholders are progressively concerned with managers’ use of opportunistic non-GAAP reporting and call for increased auditor involvement. The Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) share these concerns and propose expanding the auditor’s role with respect to non-GAAP reporting. However, the audit profession generally opposes increasing auditor responsibility for pro forma reporting, and practitioners argue that providing assurance of non-GAAP metrics will likely widen the expectation gap. This dissertation informs the ongoing debate between regulators and practitioners by investigating the association between non-GAAP reporting and audit outcomes, specifically audit quality, audit pricing, and audit report lag. This examination relies on multivariate analyses, which incorporate frequently-used proxies for audit quality (e.g., restatements, internal control weaknesses, and meeting or beating analysts’ earnings forecasts) and audit risk or effort (e.g., audit pricing and audit report lag). The final sample consists of 21,850 firm-year observations from 2005 to 2020 for U.S. issuers. The primary findings suggest that, although it is not mandatory for auditors to provide assurance of non-GAAP measures, there is a significant association between non-GAAP reporting and audit outcomes.

Specifically, the results, which are robust to supplemental analyses, indicate that non-GAAP reporting is adversely associated with audit quality and positively associated with audit fees. Interestingly, there is no evidence of an association between non-GAAP measures and audit report lag. Taken together, the results suggest that audit quality is lower and audit prices are higher for clients reporting more non-GAAP metrics. Since there is no evidence of an effect of non-GAAP measures on audit report lag, one inference is that auditors are responding to non-GAAP measures by risk-pricing non-GAAP measures, but are not ratcheting up effort to enhance audit quality. While it is unlikely that this study will settle the ongoing debate as to whether auditors should be required to provide assurance of non-GAAP measures, the findings may provide insights to regulators, practitioners, and academics who seek to better understand how auditors respond to non-GAAP reporting. This study’s initial foray into how non-GAAP measures are related to audit outcomes paves a way forward for future research.

Available for download on Tuesday, September 14, 2027