Open AccessDoes the Addition of Explicit Clarification of Auditor Independence Statement to the Auditor’s Report Matter to Equity Analysts?
Author(s) -
Xia Zhang,
Kwadwo Ofori-Mensah
Publication year - 2019
Publication title -
accounting and finance research
Language(s) - English
Resource type - Journals
eISSN - 1927-5994
pISSN - 1927-5986
DOI - 10.5430/afr.v8n2p156
Subject(s) - auditor independence , accounting , audit , auditor's report , equity (law) , audit substantive test , business , financial statement , independence (probability theory) , external auditor , stock (firearms) , actuarial science , joint audit , political science , internal audit , law , statistics , mathematics , mechanical engineering , engineering
The Public Company Accounting Oversight Board (PCAOB) adopted a new auditing standard to enhance the relevance and usefulness of the auditor’s report. One of the changes introduced in the new reporting model is the addition of a statement that explicitly clarifies the auditor’s independence (AS 3101.09.g). We administer a survey to investigate whether explicitly clarifying the auditor’s independence in the auditor’s report affects equity analysts’ perceptions of auditor independence, perceptions of financial reporting reliability, and their judgment when it comes to making stock recommendations to clients. A total of 123 equity analysts are recruited via Qualtrics for the study. The findings of the survey provide evidence that corroborates the position of the PCAOB that explicit clarification of auditor independence provides relevant information useful to public users such as equity analysts. Our study is the first to evaluate equity analysts’ perceptions about auditor independence using the new PCAOB auditor reporting model regarding the explicit clarification of auditor independence in the auditor’s report. Our study contributes to research, practice, and policy.