Updates and Comparisons Regarding Changes to the Audit Reporting Model in the United States, United Kingdom, and European Union

Lawson, Bradley P.; O'Hara, Vivian; Spencer, Angela Wheeler

doi:10.1002/jcaf.22278

Cited by 6 publications

(5 citation statements)

References 18 publications

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“…By mandating disclosure of critical (or key) audit matters, standard setters worldwide have responded to calls for a more informative auditor's report (Carcello 2012; Lawson et al 2017). Yet, because these new disclosures do not change the auditor's responsibility for the financial statements as a whole, it is unclear how they will be perceived.…”

Section: Resultsmentioning

confidence: 99%

See 1 more Smart Citation

The Forewarning Effect of Critical Audit Matter Disclosures Involving Measurement Uncertainty*

Kachelmeier

Rimkus

Schmidt

et al. 2020

Contemporary Accting Res

117

102

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We present experimental evidence suggesting that critical audit matter (CAM) disclosures in the auditor's report involving areas of high measurement uncertainty forewarn users of misstatement risk. Specifically, in our first study with MBA students, financial analysts, and attorneys, we find that CAMs (i) lower premisstatement assessments of confidence in the financial statement area disclosed as a CAM, and (ii) lower assessments of auditor responsibility for a subsequently revealed misstatement in a CAM-related area. In our second study with student participants proxying as mock jurors, we find that the responsibility-mitigating effect of CAM disclosure is driven by CAM disclosures involving measurement uncertainty, as opposed to CAM disclosures involving categorical determinations. Combined, our findings help reconcile mixed evidence from prior research, supporting the view that the forewarning effect of CAM disclosures involving measurement uncertainty could mitigate perceived auditor responsibility for CAM-related material misstatements.

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Section: Resultsmentioning

confidence: 99%

“…Backof et al (2020) find that CAM disclosures increase mock jurors' assessments of auditor culpability in a setting in which the CAM involves a categorical determination, consistent with GHO. For more detailed reviews of these and other CAM studies, see Gimbar et al (2016a) and Lawson et al (2017).…”

mentioning

confidence: 99%

The Forewarning Effect of Critical Audit Matter Disclosures Involving Measurement Uncertainty*

Kachelmeier

Rimkus

Schmidt

et al. 2020

Contemporary Accting Res

117

102

View full text Add to dashboard Cite

show abstract

“…The mean value of ACE is 6, which is inconsistent with Ghafran and O'Sullivan (2017), who reported a lower mean value of audit committee members (3.4) among a sample of FTSE 350. As Ghafran and O'Sullivan (2017) were confined to the 2007–2010 period, the high mean value of ACE in our study could be attributed to the recent requirement by the International Auditing and Assurance Standards Board (IAASB) in January 2015 to hire more experienced members for the audit committee (Lawson et al , 2017). This is also evidenced by a more comparable average of ACE reported by international firms post the recent IAASB requirement.…”

Section: Resultsmentioning

confidence: 85%

Anti-corruption disclosure quality and earnings management in the United Kingdom: the role of audit quality

Salem

Ghazwani

Gerged

et al. 2023

IJAIM

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Purpose Building upon institutional pressures on firms to deal with corruption, this study aims to investigate the association between a firm's engagement with anti-corruption disclosure quality (ACD_Q) and earnings management (EM). Also, this study examines the moderating role of audit quality in the association between ACD_Q and EM. Design/methodology/approach The authors constructed an ACD_Q index based on the 2010 UK Bribery Act and taking into account a wide range of rules on corruption and bribery, including those of the OECD, World Bank, UNCTAD, UNGC, UNCAC and GRI. Generalized method of moments and panel regression were used to examine the association between ACD_Q and EM. Findings Using a sample of 2,695 firm‐year observations of the UK’s FTSE-350 from 2008 to 2018, this study finds ACD_Q is negatively associated with EM. In addition, this negative relationship is contingent on audit committee independence and audit committee expertise. This finding is supported by additional robustness and sensitivity analysis. Practical implications The empirical evidence reiterates the crucial need for more concerted efforts to ensure corporate engagement in anti-corruption practices with a view to reducing earnings manipulations. Originality/value This study contributes to the limited evidence that investigates how ACD Q influences EM in the UK after the introduction of the UK Bribery Act in 2010. Furthermore, by considering the period from 2008 to 2019, this study investigates the potential moderating role of UK corporate governance reforms in EM reduction. In particular, to the best of the authors’ knowledge, this study assesses for the first time the moderating effect of audit committee mechanisms on the ACD Q and EM nexus.

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“…Financial report users have longed for more informative audit reports and prompted regulators to implement the KAM disclosure standard (Carcello, 2012; Lawson et al , 2017; Kachelmeier et al , 2020). KAMs involve “especially challenging, subjective, or complex auditor judgment” that is related to the risk information.…”

Section: Discussionmentioning

confidence: 99%

Key audit matters and debt contracting: evidence from China

Liu

Ning

Zhang

et al. 2022

MAJ

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Purpose In an effort to make audit reports more informative to users, the Public Company Accounting Oversight Board and the International Auditing and Assurance Standards Board adopted a standard that requires auditors to disclose key audit matters (KAMs). This paper aims to explore the impact of the risk information provided by KAMs on corporate debt contracting. Design/methodology/approach In China, the KAM standard went into effect for A + H cross-listing companies in 2017 and became mandatory for all listed companies in 2018. This study takes this as an exogenous shock to examine the impact of the KAM disclosures on debt contracting. This study also designs a path analysis to open the “black box” between the risk information in KAMs and the risk perception of creditors. Moreover, This study conducts a textual analysis on the KAMs information based on samples after the release of the KAM standard. Findings This study conducts difference-in-difference tests and find that the KAM disclosures decrease interest rates and increase the proportion of long-term debt. Path analyses reveal that the KAM disclosures lead to more favorable debt characteristics through decreasing information asymmetry. This study also finds that the more KAMs are disclosed, the more favorable debt characteristics are and that different categories of KAMs have different effects on debt contracting. Originality/value This paper highlights the benefits of KAM disclosures, which are consistent with the convergence argument of risk information disclosures. Investors’ reactions to KAMs are mixed because of the differences in how professional investors and nonprofessional investors interpret information. This study provides evidence of incrementally informative nature of KAMs from the perspective of debt holders, who are professional information users.

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Updates and Comparisons Regarding Changes to the Audit Reporting Model in the United States, United Kingdom, and European Union

Cited by 6 publications

References 18 publications

The Forewarning Effect of Critical Audit Matter Disclosures Involving Measurement Uncertainty*

The Forewarning Effect of Critical Audit Matter Disclosures Involving Measurement Uncertainty*

Anti-corruption disclosure quality and earnings management in the United Kingdom: the role of audit quality

Key audit matters and debt contracting: evidence from China

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