In this assignment, you will examine accounting restatements related to fraud. Restatements are like AAERs in that they are issued in instances of fraud or manipulation. Unlike AAERs, which are disclosed by the SEC, restatements are disclosed by firms themselves in their SEC filings (e.g., 10-Q, 10-K, 8-K).

Refer to this link for information on restatements: https://www.bakertilly.com/insights/restatements-costly-result-error

You are provided with three tables at the end of this document.:

1. Descriptive Statistics

2. Two-sample t test

3. Correlations

The tables provide data for firms that had a restatement and for a matched sample of firms that did not.

Note: All tables reference real data. Access to these data is possible through the generous funding of CPA Alberta. s. 2

Required:

You are required to propose 2 hypotheses. You must:

1. write out your null and alternative hypotheses

2. provide a logically sound discussion on the association between the two variables that you examine

3. use the tables to provide a discussion on the interpretation of the data that relates to your hypotheses

Hypothesis 1 must relate to accounting restatements. You may choose to use restatements as either an outcome (y) or determinant (x) in your model:

a) y = a + b(Restatement), OR

b) Restatement = a + b(x)

In either case, the other variable (either y or x) MUST be from the tables provided at the end of this document.

Hypothesis 2 can be about any two variables in the provided tables. For instance, you may choose to examine the association between ROA and tax havens in which case your model is either:

a) Tax Haven = a + b(ROA), OR

b) ROA = a + b(Tax Haven)

For each hypothesis, in deciding on the two possible models you need to think about causality. Given the above example (H2), model (a) predicts that more profitable firms have tax havens, while model (b) predicts that firms with tax havens are more profitable. Provide a discussion on BOTH possibilities and then select the one that you think is most probable. Think about the chicken and egg scenario we discussed in class.