Consequences of the expanded audit report for small and high-risk companies: Evidence from the United Kingdom’s Alternative Investment Market

Minutti‐Meza, Miguel; Tatum, Kay W.; Vulcheva, Maria

doi:10.2139/ssrn.3805879

Cited by 10 publications

(4 citation statements)

References 40 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…37 These conditions lead us to expect that investors of AIM companies could especially benefit from any disclosures in the expanded report. However, Gutierrez et al (2020b) find only a marginal increase in market reaction (i.e. abnormal trading volume) to AIM companies' annual reports, and this result is highly sensitive to using alternative measures of market reaction.…”

mentioning

confidence: 84%

See 1 more Smart Citation

The art of conversation: the expanded audit report

Minutti‐Meza

2021

Accounting and Business Research

Self Cite

View full text Add to dashboard Cite

The new generation of expanded audit reports includes disclosures about significant matters in a company's financial reporting and its audit. These disclosures are a landmark change in auditors' responsibility to provide information to the public. I examine expanded reports in various jurisdictions, why they became mandatory, what the evidence from their implementation is, and whether they have fulfilled the expectations of regulators and other stakeholders. Expanded reports are intended to increase the information content and usefulness of audit opinions, to increase external monitoring of auditors and management, and to foster a more open conversation between auditors and users of financial reporting. However, existing regulatory requirements, conflicting auditors' incentives to provide new information, and evidence from the expanded reports' implementation call into question whether these objectives have been met. It is my hope that expanded reports are only a first step towards enhanced auditor reporting.

show abstract

mentioning

confidence: 84%

“…In a follow-up study, Gutierrez et al (2020b) take advantage of the staggered regulatory approach in the UK to examine the consequences of the expanded report for the second wave 35…”

mentioning

confidence: 99%

The art of conversation: the expanded audit report

Minutti‐Meza

2021

Accounting and Business Research

Self Cite

View full text Add to dashboard Cite

show abstract

“…In general, these studies find that CAMs provide minimal incremental information to investors (Minutti-Meza 2021). Researchers conjecture that there are two non-1 Several studies discussed in this manuscript (e.g., Gutierrez et al 2021;Lennox, Schmidt and Thompson. 2022) examine key audit matters (KAMs) rather than critical audit matters.…”

Section: Introductionmentioning

confidence: 93%

Do Critical Audit Matters Provide Decision-Relevant Information to Investors? Evidence from Merger and Acquisition Announcements

Abbott

Buslepp

2022

SSRN Journal

View full text Add to dashboard Cite

“…If CAMs are not incrementally informative to investors, and managers and auditors do not anticipate increased scrutiny from the disclosure of tax CAMs, we may not expect to observe a change in manager or auditor behavior. In addition, audit regulators did not expect expanded audit reporting to affect the underlying work of the auditors (Gutierrez et al, 2018); thus, it is not surprising that most prior research (e.g., Burke et al, 2023; Gutierrez et al, 2018, 2022) has generally not been able to document an association between CAMs and increased audit fees, which suggests that audit effort has not increased due to CAMs. Given the conflicting predictions, we state our hypothesis in the null as follows:Hypothesis Tax CAMs are not associated with tax‐related outcomes, including tax‐related audit and financial reporting quality, tax avoidance, and tax‐related earnings management.…”

Section: Background and Hypothesis Developmentmentioning

confidence: 99%

Disclosure of tax‐related critical audit matters and tax‐related outcomes

Drake,

Goldman,

Lusch

et al. 2024

Contemporary Accting Res

View full text Add to dashboard Cite

Given that tax‐related critical audit matters (tax CAMs) were prevalent among accelerated filers (18.5% of observations) during the initial year of CAM disclosures, we examine whether an auditor's disclosure of tax CAMs is associated with variation in tax‐related financial reporting quality, tax avoidance, and tax‐related earnings management. Finding an association between tax CAMs and one of these tax outcomes would indicate that the new auditor reporting standard has indirectly affected investors. Examining the first year of CAM disclosures, we do not find that tax CAMs are associated with broad proxies of tax‐related audit or financial reporting quality (e.g., restatements, internal control weaknesses, comment letters) or tax avoidance (e.g., effective tax rates or book‐to‐tax differences). We do find that tax CAMs are associated with a modest increase in tax accrual quality, an increase in the reserve for uncertain tax benefits, and a reduction in the likelihood of tax‐related earnings management. However, we do not find these tax CAM effects persist into the second year of CAM reporting. Our evidence is consistent with tax CAM disclosures having a modest but short‐lived effect on companies’ reporting of tax accounts. Our findings should inform the PCAOB as they conduct their post‐implementation review of the new audit reporting standard.This article is protected by copyright. All rights reserved.

show abstract

Consequences of the expanded audit report for small and high-risk companies: Evidence from the United Kingdom’s Alternative Investment Market

Cited by 10 publications

References 40 publications

The art of conversation: the expanded audit report

The art of conversation: the expanded audit report

Do Critical Audit Matters Provide Decision-Relevant Information to Investors? Evidence from Merger and Acquisition Announcements

Disclosure of tax‐related critical audit matters and tax‐related outcomes

Contact Info

Product

Resources

About