Impact of Audit Quality on Accounting Policy Disclosures: Implications on Revenue Recognition Policy

Abstract:     
Accounting policy disclosures are important parts of financial reports as addressed by standard-setter. They provide value relevant information to decisionmakers on choices taken by executives. The importance of reported revenue and its use in earnings management makes revenue recognition policy disclosure especially critical for user of financial statements. However, guidance provided by both IASB and FASB is limited and confusing on revenue recognition policy disclosure. The motivation for this study is to provide insight on revenue recognition policy disclosures in IFRS reporting environment. Concurrently, study investigates the current state of revenue recognition policy disclosures after IFRS adoption in Turkey. Additionally, we investigate the impact of audit quality on revenue recognition policy disclosures. Analysis conducted in two stages to show more general results in all sample firms and provide detailed analysis in a small sample of big firms because of their economic transactions richness. Results show that audit quality measured by big 4 and non-big 4 auditors, firm size, length of disclosure and time is not related to accounting policy disclosure. Thus, it can be concluded that the preparation of revenue recognition policy disclosure is related to companies rather then auditors. This also shows the need for guidance and oversight for accounting policy disclosures provided to firms and calls auditors to direct their attention on audit of accounting policy disclosures.

Number of Pages in PDF File: 17

Keywords: Accounting Policy, Revenue Recognition, Audit Quality, Turkey, Big 4

JEL Classification: M41

working papers series