Critical audit matters: litigation, quality and conservatism

IF 3.6 Q1 BUSINESS, FINANCE
E. Elshafie
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引用次数: 3

Abstract

Purpose This study aims to address the following four research questions: first, whether auditors report critical audit matters (CAMs) to shield themselves against possible litigation; second, whether reporting quality affects auditors’ propensity to report CAMs; third, whether auditors’ tenure length – reflecting familiarity with clients’ financial reporting – affects their likelihood to report CAMs; and fourth, whether auditors’ conservatism increases the likelihood of CAMs reporting. Design/methodology/approach Data are manually collected from audit reports including CAMs in 10-K, then financial data are collected from the Capital IQ database, and market data are collected from the CRSP database. Using propensity score matching, the initial sample of companies with CAMs is matched with companies without reported CAMs. Performance adjusted discretionary accruals, real earnings management proxy, Khan and Watts’ (2009) C-score, propensity to issue a going concern opinion, Dechow et al.’s (2011) F-Score, Rogers and Stocken’s (2005) model and Houston et al.’s (2010) model are used to measure reporting quality, auditor conservatism, misstatement risk and litigation risk, respectively. Findings The results do not show that auditors report CAMs opportunistically to shield themselves from litigation risk. However, the results do suggest that auditors have a greater tendency to report CAMs when reporting quality is low and when they are more conservative. On the other hand, they have less tendency to report CAMs in their first year of engagement. Research limitations/implications The findings of this study have important implications for the auditor behavior literature as it shows that, when it comes to reporting CAMs, auditors actually behave objectively and do not report in a trite way. This study also provides early archival evidence on a standard that relates to the first major change to the auditor’s report in decades. To the best of the author’s knowledge, it is the first to provide evidence on the association between auditor conservatism and auditors tendency to report CAMs and the first to triangulate prior research on auditor litigation risk by providing the first archival evidence on the auditors “litigation-shielding” concern. Practical implications This study examines whether auditors attempt to meet the stated objective of reporting CAMs by signaling information about reporting quality. This study demonstrates that reporting CAMs is not a “boilerplate” communication. This study has implications for standards setters, as it shows that CAMs are reported in a way consistent with the objectives of the new standard, namely, via signaling information in the audit report on the quality of the financial statements. Originality/value In terms of originality, this paper uses a manually collected sample and, to the best of the author’s knowledge, is the first to focus on auditor’s behavior rather than on investors or clients reactions to CAMs. Also, this paper addresses a recently issued standard using US data and archival approach, rather than experimental. This paper also provides relevant evidence related to concerns raised earlier but were not empirically examined, such as reporting CAMS as “boilerplate” expectations. This paper provides new evidence on the auditors’ behavior with regard to litigation risk.
关键审计事项:诉讼、质量和稳健性
本研究旨在解决以下四个研究问题:第一,审计师是否报告关键审计事项(CAMs)以保护自己免受可能的诉讼;第二,报告质量是否影响审计师报告CAMs的倾向;第三,审计师的任期长短——反映了他们对客户财务报告的熟悉程度——是否会影响他们报告CAMs的可能性;第四,审计师的保守主义是否会增加CAMs报告的可能性。设计/方法/方法数据从审计报告中手动收集,包括10-K中的CAMs,然后从Capital IQ数据库收集财务数据,从CRSP数据库收集市场数据。使用倾向得分匹配,有CAMs的公司的初始样本与没有CAMs的公司匹配。绩效调整后的可支配性应计利润、真实盈余管理代理、Khan和Watts(2009)的C-score、发表持续经营意见的倾向、Dechow等人(2011)的F-Score、Rogers和Stocken(2005)的模型和Houston等人(2010)的模型分别用于衡量报告质量、审计师保守性、错报风险和诉讼风险。研究结果并不表明审计师报告CAMs是为了规避诉讼风险。然而,结果确实表明,当报告质量较低且审计人员更保守时,审计人员更倾向于报告cam。另一方面,他们在入职的第一年较少报告cam。本研究的发现对审计师行为文献具有重要意义,因为它表明,当涉及到报告cam时,审计师实际上表现客观,而不是以陈规陈规的方式进行报告。本研究还提供了与几十年来审计报告的首次重大变化有关的标准的早期档案证据。据作者所知,这是第一个提供证据证明审计师保守主义与审计师报告CAMs倾向之间存在关联的研究,也是第一个通过提供关于审计师“诉讼屏蔽”担忧的档案证据,对审计师诉讼风险的先前研究进行三角测量的研究。实际意义本研究考察了审计师是否试图通过传达有关报告质量的信息来达到报告cam的既定目标。本研究表明,报告cam并不是一种“样板式”交流。这项研究对标准制定者有影响,因为它表明,CAMs的报告方式与新标准的目标一致,即通过在审计报告中传达有关财务报表质量的信息。原创性/价值就原创性而言,本文使用人工收集的样本,据作者所知,这是第一个关注审计师的行为,而不是投资者或客户对CAMs的反应。此外,本文讨论了最近发布的使用美国数据和档案方法的标准,而不是实验性的。本文还提供了与先前提出的问题相关的证据,但没有经过经验检验,例如将CAMS报告为“样板”期望。本文为审计人员应对诉讼风险的行为提供了新的证据。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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来源期刊
CiteScore
4.30
自引率
0.00%
发文量
18
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