סמינר במימון חשבונאות

Speaker:  Prof. Gilad Livne, University of Exeter, UK

Abstract

We provide evidence of how client firms’ investment in auditing (measured as excess audit fees over an extended period) is associated with improved quality of financial reporting. In contrast to prior research where the association between audit fees and accounting quality has been measured year-by-year, we argue that the impact of investments in audit quality should be evident where such investments are sustained. Our results strongly support this view. Firms with sustained investment in auditing report more conservatively, and are less likely to suffer outcomes which are inconsistent with higher quality financial reporting. In contrast, firms where audit fees are unusually high in a single year are more likely to have lower quality financial reporting. Our results are consistent with firms making an investment in the audit process to maintain higher accounting quality (i.e., the investment in auditing and financial reporting quality are compliments). The evidence we provide also gives weight to the view that prior evidence linking audit fees with measures of accounting quality has overlooked multi-period effects of either audit effort or auditor independence effects.