Industry Specific and Task Specific Auditing Expertise: The Case of Goodwill Impairment

58 Pages Posted: 23 Oct 2017

See all articles by Giulio Greco

Giulio Greco

University of Pisa

Silvia Ferramosca

University of Pisa

Giuseppe D'Onza

University of Pisa

Monika Causholli

University of Kentucky - Von Allmen School of Accountancy

Date Written: October 20, 2017

Abstract

There is growing interest among academics and auditing regulators on the role of auditing on the quality of accounting estimates including goodwill impairment. Prior research shows that managers exercise discretion when recording goodwill impairment by either delaying the decision to record the impairment, and/or understating the amount of impairment leading to overstatement of earnings. This study examines how auditor industry expertise, measured as within-industry market share, and task specific expertise, measured as the extent of auditor’s prior experience with goodwill impairment, mitigates managerial discretion. We find no evidence of an association between industry expertise and goodwill impairment. We find that task specific expertise reduces managerial discretion related to the impairment. Specifically, prior experience with goodwill impairment is positively associated with both the likelihood of recording impairment loss as well as the amount of impairment. Our findings have implications for ongoing discussions about auditor characteristics affecting the quality of accounting estimates.

Keywords: auditor industry expertise, task expertise, goodwill impairment

Suggested Citation

Greco, Giulio and Ferramosca, Silvia and D'Onza, Giuseppe and Causholli, Monika, Industry Specific and Task Specific Auditing Expertise: The Case of Goodwill Impairment (October 20, 2017). Available at SSRN: https://ssrn.com/abstract=3056459 or http://dx.doi.org/10.2139/ssrn.3056459

Giulio Greco

University of Pisa ( email )

Lungarno Pacinotti, 43
Pisa PI, 56126
Italy

Silvia Ferramosca

University of Pisa ( email )

Lungarno Pacinotti, 43
Pisa PI, 56126
Italy

Giuseppe D'Onza

University of Pisa ( email )

Lungarno Pacinotti, 43
Pisa PI, 56126
Italy

Monika Causholli (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

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