Extended audit reporting and audit quality: evidence from goodwill impairment

Research output: Contribution to conferenceAbstract

Abstract

Using a sample of 1512 firm year observations collected for 347 UK nonfinancial listed firms on the LSE FTSE ALL SHARES index, this paper investigates the impact of the recent change introduced by the FRC in the UK auditing standards on the quality of audit provided. This recent change requires auditors to provide extended disclosures about risks of material misstatements (RMMs) they have audited and how they dealt with them. This paper examines the impact of extended auditor’s report (EAR) on the timeliness of goodwill impairments reporting over the period 2010 to 2016. Given the presence of low-performance indicators suggesting that impairment is likely to have occurred, we document larger amount of impairment loss post the implementation of the EAR. Furthermore, the size of goodwill impairment is positively associated with the auditor’s decision to consider goodwill impairment as a risk item (ADGIMP). Overall, our results indicate higher audit quality is associated with the introduction of EAR in general and the auditor decision to consider specific item as a risk item, in particular. Our conclusions suggest that the new reporting regime is associated with a decrease in opportunistic earnings management. This study should inform standard setters, companies, investors, and academic research on audit quality.

Fingerprint

Goodwill
Impairment
Audit reporting
Audit quality
Auditors
Timeliness
Auditing standards
Investors
Academic research
Audit
Risk disclosure
Performance indicators
Earnings management
Auditor change

Cite this

Elmahgoub, M., & Smith, J. (2019). Extended audit reporting and audit quality: evidence from goodwill impairment. Abstract from British Accounting & Finance Association, Birmingham, United Kingdom.
Elmahgoub, Mohamed ; Smith, Julia. / Extended audit reporting and audit quality : evidence from goodwill impairment. Abstract from British Accounting & Finance Association, Birmingham, United Kingdom.
@conference{550b0d5b37b14584886095b218016010,
title = "Extended audit reporting and audit quality: evidence from goodwill impairment",
abstract = "Using a sample of 1512 firm year observations collected for 347 UK nonfinancial listed firms on the LSE FTSE ALL SHARES index, this paper investigates the impact of the recent change introduced by the FRC in the UK auditing standards on the quality of audit provided. This recent change requires auditors to provide extended disclosures about risks of material misstatements (RMMs) they have audited and how they dealt with them. This paper examines the impact of extended auditor’s report (EAR) on the timeliness of goodwill impairments reporting over the period 2010 to 2016. Given the presence of low-performance indicators suggesting that impairment is likely to have occurred, we document larger amount of impairment loss post the implementation of the EAR. Furthermore, the size of goodwill impairment is positively associated with the auditor’s decision to consider goodwill impairment as a risk item (ADGIMP). Overall, our results indicate higher audit quality is associated with the introduction of EAR in general and the auditor decision to consider specific item as a risk item, in particular. Our conclusions suggest that the new reporting regime is associated with a decrease in opportunistic earnings management. This study should inform standard setters, companies, investors, and academic research on audit quality.",
author = "Mohamed Elmahgoub and Julia Smith",
year = "2019",
month = "4",
day = "8",
language = "English",
note = "British Accounting & Finance Association : Annual Conference ; Conference date: 08-04-2019 Through 10-04-2019",
url = "http://bafa.ac.uk/events/upcoming-events/bafa-annual-conference-with-doctoral-masterclasses-2019.html",

}

Elmahgoub, M & Smith, J 2019, 'Extended audit reporting and audit quality: evidence from goodwill impairment' British Accounting & Finance Association, Birmingham, United Kingdom, 8/04/19 - 10/04/19, .

Extended audit reporting and audit quality : evidence from goodwill impairment. / Elmahgoub, Mohamed; Smith, Julia.

2019. Abstract from British Accounting & Finance Association, Birmingham, United Kingdom.

Research output: Contribution to conferenceAbstract

TY - CONF

T1 - Extended audit reporting and audit quality

T2 - evidence from goodwill impairment

AU - Elmahgoub, Mohamed

AU - Smith, Julia

PY - 2019/4/8

Y1 - 2019/4/8

N2 - Using a sample of 1512 firm year observations collected for 347 UK nonfinancial listed firms on the LSE FTSE ALL SHARES index, this paper investigates the impact of the recent change introduced by the FRC in the UK auditing standards on the quality of audit provided. This recent change requires auditors to provide extended disclosures about risks of material misstatements (RMMs) they have audited and how they dealt with them. This paper examines the impact of extended auditor’s report (EAR) on the timeliness of goodwill impairments reporting over the period 2010 to 2016. Given the presence of low-performance indicators suggesting that impairment is likely to have occurred, we document larger amount of impairment loss post the implementation of the EAR. Furthermore, the size of goodwill impairment is positively associated with the auditor’s decision to consider goodwill impairment as a risk item (ADGIMP). Overall, our results indicate higher audit quality is associated with the introduction of EAR in general and the auditor decision to consider specific item as a risk item, in particular. Our conclusions suggest that the new reporting regime is associated with a decrease in opportunistic earnings management. This study should inform standard setters, companies, investors, and academic research on audit quality.

AB - Using a sample of 1512 firm year observations collected for 347 UK nonfinancial listed firms on the LSE FTSE ALL SHARES index, this paper investigates the impact of the recent change introduced by the FRC in the UK auditing standards on the quality of audit provided. This recent change requires auditors to provide extended disclosures about risks of material misstatements (RMMs) they have audited and how they dealt with them. This paper examines the impact of extended auditor’s report (EAR) on the timeliness of goodwill impairments reporting over the period 2010 to 2016. Given the presence of low-performance indicators suggesting that impairment is likely to have occurred, we document larger amount of impairment loss post the implementation of the EAR. Furthermore, the size of goodwill impairment is positively associated with the auditor’s decision to consider goodwill impairment as a risk item (ADGIMP). Overall, our results indicate higher audit quality is associated with the introduction of EAR in general and the auditor decision to consider specific item as a risk item, in particular. Our conclusions suggest that the new reporting regime is associated with a decrease in opportunistic earnings management. This study should inform standard setters, companies, investors, and academic research on audit quality.

M3 - Abstract

ER -

Elmahgoub M, Smith J. Extended audit reporting and audit quality: evidence from goodwill impairment. 2019. Abstract from British Accounting & Finance Association, Birmingham, United Kingdom.