| This study examines estimation accuracy using a unique purchase accounting setting where the accounting model itself prevents and deters acquirers from using financial statement estimates to manage current period earnings upwards. This setting (i.e., ASC 310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality) controls for several earnings management opportunities present in other settings with observable estimation errors; therefore, observed estimation errors in this setting enable cleaner tests of unintentional errors (i.e., mistakes) in reported estimates. Using data from ASC 310-30 disclosures, I analyze ex post realizations of estimates of expected future cash flows. As predicted, results show that three forms of accounting oversight---manager accounting expertise, audit committee accounting expertise, and auditor industry specialization---are each individually associated with more accurate estimates. Additionally, these variables interact such that auditor industry specialization is associated with more accurate estimates when either manager accounting expertise is present or audit committee accounting expertise is higher, but not when both manager accounting expertise is absent and audit committee accounting expertise is lower. This suggests audit committees moderate interactions between auditors and managers and implies that auditors function more effectively when audit committees understand complex accounting issues. |
