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Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom
Author(s) -
Reid Lauren C.,
Carcello Joseph V.,
Li Chan,
Neal Terry L.,
Francis Jere R.
Publication year - 2019
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/1911-3846.12486
Subject(s) - audit , accounting , accrual , business , quality audit , auditor independence , audit evidence , external auditor , earnings , joint audit , quality (philosophy) , auditor's report , internal audit , philosophy , epistemology
While substantial revisions to auditor reporting requirements are being implemented internationally, the impact of these reforms on financial reporting quality is unknown. We exploit the United Kingdom's recent auditor reporting changes and find that the United Kingdom's new reporting regime is associated with an improvement in financial reporting quality as proxied by significant decreases in absolute abnormal accruals and the propensity to just meet or beat analyst forecasts, and a significant increase in earnings response coefficients. As for audit costs, we do not find a significant change in audit fees or audit delay surrounding the implementation of the new reporting regime. Taken together, the results of this study suggest that new auditor reporting requirements are associated with a significant improvement in financial reporting quality without detecting a significant increase in audit costs.