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Consequences of adopting an expanded auditor’s report in the United Kingdom

Elizabeth Gutierrez (), Miguel Minutti-Meza (), Kay W. Tatum () and Maria Vulcheva ()
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Elizabeth Gutierrez: Universidad de Chile
Miguel Minutti-Meza: University of Miami
Kay W. Tatum: University of Miami
Maria Vulcheva: Florida International University

Review of Accounting Studies, 2018, vol. 23, issue 4, No 9, 1543-1587

Abstract: Abstract The United Kingdom has recently required an expanded auditor’s report for large public companies. We investigate whether this requirement is associated with an increase in the decision usefulness of the auditor’s report and whether it has indirect consequences on audit fees and quality. Our analyses cover four years surrounding the changes, including companies that transitioned to the new regime and companies that continued issuing the previous report’s format. We do not find evidence that the regulatory change significantly affected investors’ reaction to the release of auditors’ reports, audit fees, or audit quality. Furthermore, we do not find that variation in the expanded reports’ content has affected these outcomes. Although companies with long reports pay comparatively higher fees, the mere increase in disclosure does not affect audit fees or quality. Collectively, our evidence is consistent with the expanded auditor’s report providing little incremental information to investors.

Keywords: Auditor report; Audit opinion; Market reaction; Audit quality; Audit fees (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:reaccs:v:23:y:2018:i:4:d:10.1007_s11142-018-9464-0