Consequences of Expanded Audit Reports: Evidence from the United Kingdom’s Alternative Investment Market
51 Pages Posted: 18 Mar 2021 Last revised: 14 Mar 2024
Date Written: January 10, 2024
Abstract
The United Kingdom mandated expanded audit reports in two waves, starting in 2013 and 2017, respectively. The second wave included small emerging companies listed on the Alternative Investment Market (AIM), a growth market subject to light regulation and private monitoring. In this study, we first present descriptive evidence about the expanded reports of AIM companies. Next, we document that, on average, expanded reports of AIM companies have negligible incremental information content for investors or consequences for the quality and cost of audits. Finally, we find some evidence that cross-sectional variation in expanded report disclosures is associated with variation in investors’ reaction to annual reports and audit fees, but variation in external monitoring and company size does not play an incremental role. This study is among the first to examine the role of expanded reports in a growth market, as well as the incremental effect of variations in external monitoring and company size for the consequences of expanded reports.
Keywords: AIM; audit report; key audit matters; market reaction; audit quality; audit fees; auditing standards.
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