Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom

53 Pages Posted: 21 Aug 2015 Last revised: 28 May 2018

Lauren C. Reid

University of Pittsburgh - Accounting Group

Joseph V. Carcello

University of Tennessee

Chan Li

University of Pittsburgh - Katz Graduate School of Business

Terry L. Neal

University of Tennessee

Date Written: May 19, 2018

Abstract

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 U.K.’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.

Keywords: audit report changes; PCAOB; United Kingdom; financial reporting quality; audit costs

Suggested Citation

Reid, Lauren C. and Carcello, Joseph V. and Li, Chan and Neal, Terry L., Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom (May 19, 2018). Available at SSRN: https://ssrn.com/abstract=2647507 or http://dx.doi.org/10.2139/ssrn.2647507

Lauren C. Reid (Contact Author)

University of Pittsburgh - Accounting Group ( email )

United States

Joseph V. Carcello

University of Tennessee ( email )

Department of Accounting & Information Management
629 Stokely Management Center
Knoxville, TN 37996-0560
United States
865-974-1757 (Phone)
865-974-4631 (Fax)

Chan Li

University of Pittsburgh - Katz Graduate School of Business ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

Terry L. Neal

University of Tennessee ( email )

639 Stokely Management Center
Knoxville, TN 37996-0560
United States
865-974-2664 (Phone)
865-974-4631 (Fax)

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