 Changes in audit effort and changes in auditors’ disclosures of risks of material misstatementPenny F. Zhang and Greg Shailer The British Accounting Review, 2021, vol. 53, issue 3 Abstract: This paper investigates whether auditors' year-to-year modification to risks of material misstatements (RMMs) in extended auditors' reports (EARs) are associated with changes in underlying audit effort, as proxied by changes in audit fees. We examine the dynamics of RMMs over time in terms of adding or dropping specific RMMs. Our main results show that, on average, audit fees increase more from the previous year's fees when more RMMs are added to the current year's EAR. This increase is partially offset by dropping RMMs that were disclosed in the previous year, but changes in audit fees are not significantly affected by dropping RMMs without adding new RMMs. Further analysis suggests the effect of added RMMs is attributable to “new” RMMs originating with the auditor and that added RMMs that were previously known, based on related disclosures in the prior year's audit committee report, do not significantly impact on changes in audit fees. Overall, our results suggest that changes in the choice of RMMs included in EARs reflect changes in underlying audit effort. Keywords: Extended audit report; Audit effort; Audit fee; Risks of material misstatements; Key audit matters (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:53:y:2021:i:3:s0890838920300901 DOI: 10.1016/j.bar.2020.100970 Access Statistics for this article The British Accounting Review is currently edited by Nathan Lael Joseph and Alan Lowe More articles in The British Accounting Review from Elsevier |
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