Consequences of Adopting an Expanded Auditor's Report in the United Kingdom

81 Pages Posted: 3 Mar 2016 Last revised: 10 Oct 2018

See all articles by Elizabeth F. Gutierrez

Elizabeth F. Gutierrez

Universidad de Chile

Miguel Minutti-Meza

University of Miami - Department of Accounting

Kay Tatum

University of Miami - Department of Accounting

Maria Vulcheva

Florida International University

Date Written: April 23, 2018

Abstract

The United Kingdom has recently required an expanded auditor’s report for large public companies. We investigate whether this requirement is associated with an increase in the decision usefulness of the auditor’s report and whether it has indirect consequences on audit fees and quality. Our analyses cover four years surrounding the changes, including companies that transitioned to the new regime and companies that continued issuing the previous report’s format. We do not find evidence that the regulatory change significantly affected investors’ reaction to the release of auditors’ reports, audit fees, or audit quality. Furthermore, we do not find that variation in the expanded reports’ content has affected these outcomes. Although companies with long reports pay comparatively higher fees, the mere increase in disclosure does not affect audit fees or quality. Collectively, our evidence is consistent with the expanded auditor’s report providing little incremental information to investors.

Keywords: Auditor's report, audit quality, audit fees, market reaction

JEL Classification: M41, M49

Suggested Citation

Gutierrez, Elizabeth F. and Minutti-Meza, Miguel and Tatum, Kay and Vulcheva, Maria, Consequences of Adopting an Expanded Auditor's Report in the United Kingdom (April 23, 2018). Review of Accounting Studies, Forthcoming; University of Miami Business School Research Paper No. 18-1. Available at SSRN: https://ssrn.com/abstract=2741174 or http://dx.doi.org/10.2139/ssrn.2741174

Elizabeth F. Gutierrez

Universidad de Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Miguel Minutti-Meza (Contact Author)

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States
305-284-6287 (Phone)

Kay Tatum

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States

Maria Vulcheva

Florida International University ( email )

11200 SW 8 Street RB244B
Miami, FL 33199
United States

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