Essays on Contemporary Financial Accounting and Auditing Research

This dissertation contains three distinct studies. The first study tests the implication of prospect theory in auditor-client contracting. It shows that auditors charge higher risk premium when clients’ earnings are more negatively skewed. It implies that negative-tail events in clients’ earnings make auditors risk averse. The second study examines the economic consequences of simplifying U.S. accounting standards and documents its unintended consequences of bringing information and economic loss to investors. The third study investigates the impact of social connectedness on the cost of audit and finds firms with higher social proximity to auditors paying lower audit fees. The results highlight the informational benefits of social connection in reducing uncertainties in audit process.