We examine the economic impact of analysts' cash flow forecasts by looking at how external auditors respond to financial analysts' issuance of cash flow forecasts. Using a differences-in-differences approach, we find that financial analysts' initiation of cash flow forecasts leads to reduced auditor fees and audit report lags. Moreover, after cash flow forecast initiation, firms report fewer Section 404(b) internal control weakness disclosures. These findings suggest that cash flow forecasts constrain earnings manipulation and improve management accounting behavior, thereby reducing inherent and control risk and strengthening firms' internal control over financial reporting.

Analysts' cash flow forecasts, Audit fee, Audit lag, Internal control weakness
dx.doi.org/10.1111/jbfa.12117, hdl.handle.net/1765/88468
Journal of Business Finance & Accounting
Department of Business Economics

Mao, Q, & Yu, Y. (2015). Analysts' Cash Flow Forecasts, Audit Effort, and Audit Opinions on Internal Control. Journal of Business Finance & Accounting, 42(5-6), 635–664. doi:10.1111/jbfa.12117