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The Impacts of Extended Audit Related Disclosures on Firms' Information Environments.

Record Type:	Language materials, manuscript : Monograph/item
Title/Author:	The Impacts of Extended Audit Related Disclosures on Firms' Information Environments./
Author:	Leofo, Romalani.
Description:	1 online resource (301 pages)
Notes:	Source: Dissertations Abstracts International, Volume: 85-06, Section: A.
Contained By:	Dissertations Abstracts International85-06A.
Subject:	Finance. -
Online resource:	click for full text (PQDT)
ISBN:	9798380868105

The Impacts of Extended Audit Related Disclosures on Firms' Information Environments.
Leofo, Romalani.

The Impacts of Extended Audit Related Disclosures on Firms' Information Environments. - 1 online resource (301 pages)

Source: Dissertations Abstracts International, Volume: 85-06, Section: A.

Thesis (Ph.D.)--The Australian National University (Australia), 2023.

Includes bibliographical references

This thesis examines the impact of extended audit related disclosures by auditors and audit committees in relation to financial reports on firms' information environments in the UK which is the only jurisdiction to extend both audit reports and audit committee reports to disclose risks and concerns associated with the published audited financial reports. Using UK data for 2013-2019, I first develop within-industry-year measures of key audit matters (KAMs) specificity to identify less-generic KAMs. I then investigate whether disclosures of less-generic KAM types influence stock price crash risk (henceforth crash risk) and stock price synchronicity (henceforth synchronicity). Disclosures of popular KAM types within an industry-year are likely to reflect generic issues common in the industry, while less-frequently disclosed KAM types are likely to be about idiosyncratic matters unique to the firm or less-generic KAMs. Second, I investigate whether audit committee disclosures of significant issues (SIs) in relation to the financial reports, as an indication of audit committee oversight engagement and diligence, influence crash risk and synchronicity. Finally, the interplay between the disclosures of auditors and audit committees on firms' information environments is examined, to investigate the complementarity and relative contributions of the auditors' and audit committees' perspectives. I find that less-generic KAMs result in improved information environments, as measured by lower crash risk. These results suggest that, overall, less-generic KAMs make it more costly for managers to stock-pile bad news, consistent with increasing the threat of managers having to justify financial reporting decisions and inducing improved future management disclosures. Further analyses show that the crash risk mitigating effect of less-generic KAMs is particularly important for small firms, non-specialist auditors and lower client importance. I also find a significant negative association between less-generic KAMs and stock return synchronicity, which is consistent with less-generic KAMs enhancing information transparency and investor confidence on financial statements. In relation to the individual KAM types, revenue, going concern and investment related KAMs are associated with higher synchronicity, suggesting that these topics undermine investor confidence on financial statements. However, the issuance of internal control, property, plant and equipment and merger and acquisition KAMs alleviates synchronicity. Further analyses show that the synchronicity mitigating effect of idiosyncratic KAMs is particularly important for large firms. I find that the total number of SIs and unique SIs disclosed by audit committees are not significantly related to crash risk but are negatively associated with synchronicity. These results suggest that SIs, by themselves, do not influence managerial bad news hoarding, but may increase investors' confidence in relying on a firm's financial statements. When KAMs and, SIs are examined jointly, it remains that only KAM but not SIs reduce crash risk but both KAMs and SIs affect synchronicity. The results are robust to alternative model-specifications, alternate measures of less-generic KAMs and synchronicity, exclusion of financial firms and methods for addressing endogeneity concerns. The findings of this thesis indicate that the more firm-specific disclosures of both audit committees and auditors contribute to enhancing firms' information environments. These findings should help inform audit regulators of the benefits of KAMs and SIs and may be useful for non-UK jurisdictions contemplating the merits of extended audit committee reports.

Electronic reproduction.
Ann Arbor, Mich. :
ProQuest,
2024

Mode of access: World Wide Web

ISBN: 9798380868105Subjects--Topical Terms:

559073
Finance.
Subjects--Index Terms:

Audit related disclosuresIndex Terms--Genre/Form:

554714
Electronic books.

The Impacts of Extended Audit Related Disclosures on Firms' Information Environments.
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520 $a This thesis examines the impact of extended audit related disclosures by auditors and audit committees in relation to financial reports on firms' information environments in the UK which is the only jurisdiction to extend both audit reports and audit committee reports to disclose risks and concerns associated with the published audited financial reports. Using UK data for 2013-2019, I first develop within-industry-year measures of key audit matters (KAMs) specificity to identify less-generic KAMs. I then investigate whether disclosures of less-generic KAM types influence stock price crash risk (henceforth crash risk) and stock price synchronicity (henceforth synchronicity). Disclosures of popular KAM types within an industry-year are likely to reflect generic issues common in the industry, while less-frequently disclosed KAM types are likely to be about idiosyncratic matters unique to the firm or less-generic KAMs. Second, I investigate whether audit committee disclosures of significant issues (SIs) in relation to the financial reports, as an indication of audit committee oversight engagement and diligence, influence crash risk and synchronicity. Finally, the interplay between the disclosures of auditors and audit committees on firms' information environments is examined, to investigate the complementarity and relative contributions of the auditors' and audit committees' perspectives. I find that less-generic KAMs result in improved information environments, as measured by lower crash risk. These results suggest that, overall, less-generic KAMs make it more costly for managers to stock-pile bad news, consistent with increasing the threat of managers having to justify financial reporting decisions and inducing improved future management disclosures. Further analyses show that the crash risk mitigating effect of less-generic KAMs is particularly important for small firms, non-specialist auditors and lower client importance. I also find a significant negative association between less-generic KAMs and stock return synchronicity, which is consistent with less-generic KAMs enhancing information transparency and investor confidence on financial statements. In relation to the individual KAM types, revenue, going concern and investment related KAMs are associated with higher synchronicity, suggesting that these topics undermine investor confidence on financial statements. However, the issuance of internal control, property, plant and equipment and merger and acquisition KAMs alleviates synchronicity. Further analyses show that the synchronicity mitigating effect of idiosyncratic KAMs is particularly important for large firms. I find that the total number of SIs and unique SIs disclosed by audit committees are not significantly related to crash risk but are negatively associated with synchronicity. These results suggest that SIs, by themselves, do not influence managerial bad news hoarding, but may increase investors' confidence in relying on a firm's financial statements. When KAMs and, SIs are examined jointly, it remains that only KAM but not SIs reduce crash risk but both KAMs and SIs affect synchronicity. The results are robust to alternative model-specifications, alternate measures of less-generic KAMs and synchronicity, exclusion of financial firms and methods for addressing endogeneity concerns. The findings of this thesis indicate that the more firm-specific disclosures of both audit committees and auditors contribute to enhancing firms' information environments. These findings should help inform audit regulators of the benefits of KAMs and SIs and may be useful for non-UK jurisdictions contemplating the merits of extended audit committee reports.
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