The Quality of Mandatory Non-Financial (Risk) Disclosures: The Moderating Role of Audit Firm and Partner Characteristics

Forthcoming, The International Journal of Accounting

63 Pages Posted: 19 Mar 2019 Last revised: 28 Jan 2021

See all articles by Saverio Bozzolan

Saverio Bozzolan

Luiss Guido Carli University - Department of Business and Management

Antti Miihkinen

Aalto University School of Business; University of Turku - Turku School of Economics

Date Written: October 1, 2019

Abstract

Risk disclosures are among the most important types of nonfinancial information valued by investors. Risk disclosures are mostly narrative and proprietary in nature; consequently, their accuracy and assurance is highly important to prevent disclosures from becoming boilerplate and losing their relevance. By exploiting the unique features of a setting where risk disclosure is mandatory and under a positive assurance requirement, we investigate whether the quality of audited risk disclosures is associated with the type of audit firm (Big-4 vs. non-Big-4), the characteristics of the audit firm, and the attributes of the audit partner. Our results show an association between risk disclosure quality and auditors, but not in the expected ways. After the enforcement of a regulation requiring a detailed description of risks in the Operating and Financial Review (OFR) and a positive assurance of external audit over these disclosures, we do not document any significant Big-4 effect. The quality of risk disclosures is associated with the attributes of the audit partner, namely, familiarity with different client risk disclosures, industry expertise, and gender, independently from affiliation with a Big-4 audit firm. Along these lines, we extend recent evidence on the audit partner effects in the assurance of nonfinancial narrative information.

Keywords: Non-Financial Information, Risk Disclosure, Positive Assurance, Audit Partner Characteristics

Suggested Citation

Bozzolan, Saverio and Miihkinen, Antti and Miihkinen, Antti, The Quality of Mandatory Non-Financial (Risk) Disclosures: The Moderating Role of Audit Firm and Partner Characteristics (October 1, 2019). Forthcoming, The International Journal of Accounting, Available at SSRN: https://ssrn.com/abstract=3342703 or http://dx.doi.org/10.2139/ssrn.3342703

Saverio Bozzolan (Contact Author)

Luiss Guido Carli University - Department of Business and Management ( email )

Via Salvini, 3
Rome, 00198
Italy

Antti Miihkinen

Aalto University School of Business ( email )

Ekonominaukio 1
Espoo, 02150
Finland

University of Turku - Turku School of Economics ( email )

Rehtorinpellonkatu 3
Turku, FI-20500
Finland

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