IFRS adoption transformed the accounting treatment for goodwill in many countries. Instead of amortizing goodwill, firms now test for its impairment and write off impairment losses against income. Accounting standard-setting bodies claim that an impairment regime better reflects the underlying economic value of goodwill than systematic amortization. We investigate this claim by comparing the association between goodwill accounting charges against income and firms' economic investment opportunities in amortization and impairment regimes. We find that the association between firms' goodwill charges against income and the firms' investment opportunities is stronger during the IFRS regime than the AGAAP regime. This indicates that, as claimed, impairment charges better reflect the underlying economic attributes of goodwill than do amortization charges.
Although essential in the delivery of a high‐quality audit, regulators report their concerns about an apparent lack of professional skepticism exercised by auditors. In an experiment, we use regulatory focus and social identity theories to examine how the style used by a partner (supportive or unsupportive) when allocating a task and team identity salience (high or low) combine to impact skepticism. We find that when team identity salience is high, auditors demonstrate greater skepticism when a partner's style is supportive rather than unsupportive. In additional analysis, we also consider how motivation moderates the effect of partner style and team identity salience on skepticism and retest our hypotheses using a different measure of skepticism. Our results suggest that team identity salience is important when considering the effect of partner style on professional skepticism.
We investigate the justifications provided by the Public Company Accounting Oversight Board (PCAOB) when sanctioning audit firms and individual auditors, as disclosed in the publicly released Settled Disciplinary Orders (SDOs). Employing responsive regulation theory, we seek to gain an understanding of violating behaviors by audit firms and individual auditors that attract regulatory responses ranging in nature from persuasive to punitive sanctions. Using 298 SDOs issued by the PCAOB from 2005 to 2020, we find that the frequency and severity of PCAOB sanctions at the firm level are positively associated with auditing standards violations, independence issues, and reckless behavior. At the individual auditor level, integrity violations and reckless behavior are positively associated with the frequency and severity of PCAOB sanctions. Our findings indicate that significantly higher financial penalties for individual auditors (audit firms) arise from manipulation of audit evidence (quality control criticisms). Further, the PCAOB financially penalizes Big 4-affiliated auditors and firms significantly more than their non-Big 4 counterparts. Other factors such as multiple individuals being implicated in an SDO and whether a firm and individual(s) are both implicated in the SDO are important considerations in sanction(s) imposed by the PCAOB. Overall, our findings suggest that the PCAOB adopts a responsive enforcement strategy when monitoring the auditors in their ethical and audit compliance efforts.
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