The impact of reducing reporting requirements on audit quality, auditor effort and auditor conservatism

Abstract

Purpose This study aims to examine the effect of reducing disclosure and auditing requirements on audit quality, auditor effort and auditor conservatism. The Jumpstart Our Business Startups (JOBS) Act of 2012 is used as a setting for this research. The JOBS Act aimed to boost economic growth by easing emerging growth companies’ (EGCs) access to capital markets. The Act provides scaled disclosure and auditing provisions and exemptions for EGCs. Design/methodology/approach Using data from Capital IQ, CRSP and Audit Analytics on EGCs and matching non-EGCs between 2012 and 2018, this study assesses the effect of such reduced disclosure and audit requirements on audit quality, auditor effort and auditor conservatism. Findings The findings denote that while audit quality and auditor effort are lower for EGCs, auditor conservatism is not different for EGCs as compared to non-EGCs. Originality/value This study expands the current research by providing evidence on the impact of reduced reporting and auditing requirements on auditor conservatism and audit quality, in addition to auditor effort in EGC engagements.