Auditors' certified fraud examiner designation and its impact on financial reporting quality and internal control weaknesses

Abstract

This study investigates the effects of auditors' certified fraud examiner (CFE) designation on internal control weaknesses (ICW) and financial reporting quality (FRQ), represented by discretionary accruals and real earnings management. After using two prominent measures of FRQ in the literature, I found that CFE designation is negatively associated with ICW and positively associated with discretionary accruals and real earnings management. Further analyses supported my main findings and suggested CFEs are more likely to find ICWs because of their anti-fraud training, allowing them to conduct higher-quality audits. Higher-quality audits generally lead to greater FRQ. I contribute to the literature by evaluating the impact of CFE designation on the quality of audit financial statements. The results should benefit investors, shareholders, regulators, academic researchers, audit practitioners, and anyone who uses financial information to make a business assessment.