Loan loss provisions in large publicly quoted European banks and auditor independence

Campa, Domenico; Donnelly, Ray

doi:10.1111/ijau.12158

Cited by 2 publications

(3 citation statements)

References 35 publications

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“…The increased uncertainty leads to more dispersed data that is fed into the ECL-models. Research has shown that there is no connection between the provision for credit losses and auditor-client economic bond (Kanagaretnam et al 2010;Campa and Donnelly 2019). It is expected that the auditor will place more emphasis on the provision for credit losses due to the increased uncertainty and will share an independent view on the models and assumptions that are used by the banks.…”

Section: Quantitative Analysis On Expected Credit Lossesmentioning

confidence: 99%

Empirical results for expected credit losses of G-SIBs during COVID-19. The proof of the pudding is in the eating

Brouwer¹,

Huttenhuis²,

Hoeven³

2021

MAB

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This study examines the provision for credit losses and its disclosures for Global Systemically Important Banks (G-SIBs) in connection to the COVID-19 crisis. We find a profound difference in the increase of the provision for credit losses between banks that report under IFRS and US GAAP. For banks that report under US GAAP, the provision for credit losses more than doubles, while it increases by only 32 percent for banks that report under IFRS. This difference becomes even more striking when considering that the increase for IFRS-reporting banks is partly attributable to increased lending activities. This study further finds that European auditors are more likely to issue a Key Audit Matter (KAM), than auditors of US banks, and that these KAMs specifically relate to COVID-19 in the financial year 2020. Furthermore, IFRS-reporting banks disclose more information on expected credit losses than banks that report under US GAAP. Moreover, we find that European banks disclose relatively more information regarding the impact of COVID-19 than banks reporting under US GAAP.

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Section: Quantitative Analysis On Expected Credit Lossesmentioning

confidence: 99%

Empirical results for expected credit losses of G-SIBs during COVID-19. The proof of the pudding is in the eating

Brouwer¹,

Huttenhuis²,

Hoeven³

2021

MAB

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show abstract

“…Strong banks governance is paramount for the whole financial system (Jizi & Nehme, 2018). In addition, the audit of banks is more complex than the one in other industries due to the complexity of their operations (Campa & Donnelly, 2019). Thus, audit committees play an important role in overseeing the financial reporting process and the auditing process.…”

Section: Discussionmentioning

confidence: 99%

“…Finally, we control for the magnitude of the discretionary loan loss provision ( DLLP ), a proxy of banks' financial reporting quality (Campa & Donnelly, 2019). Sahyoun and Magnan (2020) suggest that banks' audit committees increase voluntary disclosure whenever financial reporting quality is low.…”

Section: Methodsmentioning

confidence: 99%

Banks' voluntary disclosure in the audit committee reports, cost of equity and the mediating role of financial analysts

Sahyoun

Magnan

2022

Int J Auditing

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Voluntary disclosure in the audit committee report is expected to provide additional information about the activities undertaken to protect investors. The Securities and Exchange Commission's (SEC) ultimate aim in initially promulgating audit committee disclosure requirements was to reduce firms' cost of equity. However, prior research finds that voluntary disclosure in the audit committee report is akin to impression management. In 2015, the SEC issued a concept release encouraging audit committees to provide additional voluntary disclosures in their reports beyond mandatory requirements. In that context, this paper analyses the effect of the audit committee voluntary disclosure on the cost of equity, with financial analysts playing a mediating role. The sample comprises the top US bank holding companies from 2006 to 2015. We manually code the voluntary disclosure in audit committee reports using a scoring grid. Results show that audit committee voluntary disclosure increases the cost of equity. In addition, the association between voluntary disclosure and the cost of equity is mediated by financial analysts. Hence, we infer that the impression management undertone of voluntary disclosures affects financial analysts' coverage and forecasting properties, which in turn lead to an increase in the cost of equity. The paper's empirical evidence highlights the effects of impression management disclosure by analysing corporate governance voluntary disclosures, cost of equity and financial analysts and brings the issue to the attention of banking regulators, SEC and investors.

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Loan loss provisions in large publicly quoted European banks and auditor independence

Cited by 2 publications

References 35 publications

Empirical results for expected credit losses of G-SIBs during COVID-19. The proof of the pudding is in the eating

Empirical results for expected credit losses of G-SIBs during COVID-19. The proof of the pudding is in the eating

Banks' voluntary disclosure in the audit committee reports, cost of equity and the mediating role of financial analysts

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