Goodwill Impairment and Audit Effort

Accounting Horizons, Forthcoming

41 Pages Posted: 26 Mar 2021

See all articles by Al (Aloke) Ghosh

Al (Aloke) Ghosh

UNC Charlotte

Cunyu Xing

Southwestern University of Finance and Economics (SWUFE)

Date Written: February 24, 2021


Using abnormal audit fees to capture any added charges associated with incremental audit effort beyond the effort level needed under normal or expected circumstances, we find that the incremental audit effort is positively associated with goodwill to total assets. Additionally, when goodwill is impaired, auditors exert incrementally more effort for testing the magnitude of a goodwill impairment loss than when goodwill is not impaired. Further, we document predictable temporal and cross-sectional variations in audit effort with goodwill. As the standards on accounting for goodwill became more (less) stringent, there is a corresponding increase (decrease) in audit effort. The effort also varies cross sectionally with auditor quality (Big 4 versus non-Big 4). Using audit delay as an alternative proxy for audit effort, we find that only a goodwill impairment loss is associated with longer audit delays. Finally, we provide corroborating evidence based on survey responses obtained from expert auditors. Our results contradict the perception that auditors do not exert incrementally more effort when testing goodwill for impairment.

Keywords: goodwill impairments; abnormal audit fees; audit effort; audit delay

JEL Classification: M40; M42; C42

Suggested Citation

Ghosh, Al (Aloke) and Xing, Cunyu, Goodwill Impairment and Audit Effort (February 24, 2021). Accounting Horizons, Forthcoming, Available at SSRN:

Al (Aloke) Ghosh (Contact Author)

UNC Charlotte ( email )

9201 University City Blvd
Charlotte, NC 28223
United States


Cunyu Xing

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074

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