Acquired intangible assets, CAM disclosures, and audit risk

69 Pages Posted: 7 Jun 2023 Last revised: 8 Nov 2023

See all articles by Alexander Liss

Alexander Liss

KU Leuven, Department Accounting, Finance and Insurance; TRR 266 Accounting for Transparency

Jan Riepe

University of Tuebingen - Department of Banking

Soenke Sievers

TRR 266 Accounting for Transparency; Paderborn University

Date Written: November 5, 2023

Abstract

This paper investigates the association between net values of acquired intangible asset classes, their inherent audit risk, and audit fees. First, our findings using a large and hand-collected sample show that acquired intangibles, in general and especially with definite lifetimes, remain less expensive than the alternative accounting treatment: goodwill. Second, and most important, we show that auditors’ use of intangible-related critical audit matters (CAMs) moderates this association in a difference-in-differences design. Intangible assets increase audit fees especially in high litigation industries, but intangible-related CAMs moderate the link between intangible assets and audit fees. These results are consistent with the hypotheses that public disclosure of intangible-related CAMs gives the auditor subject-specific protection against audit risks from acquired intangible assets. This, in turn, allows them to reduce audit fees. Overall, these results are important for auditors, standard setters and also inform researchers regarding the risk-reducing effects of CAM disclosures.

Keywords: Intangible assets, auditing, business combinations, critical audit matters

JEL Classification: M40, M42, M48

Suggested Citation

Liss, Alexander and Riepe, Jan and Sievers, Soenke, Acquired intangible assets, CAM disclosures, and audit risk (November 5, 2023). TRR 266 Accounting for Transparency Working Paper Series No. 123, Available at SSRN: https://ssrn.com/abstract=4472467 or http://dx.doi.org/10.2139/ssrn.4472467

Alexander Liss (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Jan Riepe

University of Tuebingen - Department of Banking ( email )

Nauklerstr. 47
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

Soenke Sievers

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

HOME PAGE: http://www.upb.de/accounting

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