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

Posted: 16 Aug 2018

See all articles by Lauren C. Reid

Lauren C. Reid

Wake Forest University - Schools of Business

Joseph V. Carcello

University of Tennessee

Chan Li

University of Kansas

Terry L. Neal

University of Tennessee

Multiple version iconThere are 2 versions of this paper

Date Written: July 11, 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 (July 11, 2018). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3225873

Lauren C. Reid

Wake Forest University - Schools of Business ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7285
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 (Contact Author)

University of Kansas ( email )

Capitol Federal Hall
Lawrence, KS 66045
United States
7857661277 (Phone)
66045 (Fax)

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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