The Auditors Report And Investor Behavior

Over time, businesses have become more complex and financial reporting has progressed. As a result, the uncertainty, judgements and estimations that underpin financial statements have also increased. Thus, to reduce the information risk, one of investor's main approaches is to rely on audited financial statements. The auditor's report presents an opinion on the financial statements, which presents to the investor an opinion on the financial statements. However, the auditor's report has up until now been a standard pass/fail report, without more detailed information on how the audit procedures where conducted, or companies specific risk. Investors and other users of financial statements have demanded greater transparency and insight into auditing, because auditors are professionals who conduct their work behind the scenes. As a response, the International Auditing and Assurance Standards Board (IAASB) introduced changes to the auditor's report. This thesis investigates the usefulness of the information delivered to investors and whether there is a reduction in information asymmetry. A quantitative research approach in addition to panel data regressions analysed a sample of 252 listed companies in the Brazilian stock market, for the years 2015 and 2016. The results showed that a reduction in information asymmetry occurred after the implementation of the new disclosure regime. Future studies could examine the audit report impact closely to others factors, and also an qualitative research might give better inside from the investors perspective.

We investigate the incremental market reaction to first-time going concern audit reports (GCARs) relative to similarly distressed non-GCAR firms. We utilize a matched-sample research design to show that first-time GCARs are associated with incremental negative abnormal returns and increases in market-adjusted share turnover at the annual report filing date. Moreover, our results indicate that greater net selling by institutional investors (i.e., institutional flight) during the fiscal year increases the magnitude of these associations. We also find that first-time GCARs signal an increased likelihood of bankruptcy and weaker operating performance in the subsequent year, and that institutional flight prior to the GCAR moderates the severity of these signals. Taken together, our findings provide new evidence that first-time GCARs are incrementally informative beyond other financial statement information, and that the informativeness of the auditor's GCAR decision is moderated by the observed trading decisions of institutional investors.

The Public Company Accounting Oversight Board (PCAOB) has recently required auditors to disclose critical audit matters (CAMs), which are financial statement matters that involve especially challenging, subjective, or complex auditor judgments. The PCAOB contends that CAMs will increase the decision usefulness of the auditor's report and indirectly benefit investors by increasing audit and financial reporting quality. I examine whether investors react to CAM disclosures and whether they perceive any change in adopting firms' financial reporting quality. Using a difference-in-differences design, I find that (1) while there is no significant stock price reaction to CAMs on average, investors react negatively to CAMs disclosed by firms with high levels of short interest; (2) there is a significant increase in the quarterly earnings response coefficient for adopting firms. The effect is driven by big-N audit firms, and increases with the number of CAMs reported. Collectively, the evidence suggests that investors use CAMs to confirm their pre-existing opinions about a firm, and that they perceive an improvement in audit quality and financial reporting reliability due to the CAM disclosure requirement.

Tiivistelmä: Tilintarkastuskertomukset ja osakemarkkinat.

Audits provide essential accountability and transparency over government programs. Given the current challenges facing governments and their programs, the oversight provided through auditing is more critical than ever. Government auditing provides the objective analysis and information needed to make the decisions necessary to help create a better future. The professional standards presented in this 2018 revision of Government Auditing Standards (known as the Yellow Book) provide a framework for performing high-quality audit work with competence, integrity, objectivity, and independence to provide accountability and to help improve government operations and services. These standards, commonly referred to as generally accepted government auditing standards (GAGAS), provide the foundation for government auditors to lead by example in the areas of independence, transparency, accountability, and quality through the audit process. This revision contains major changes from, and supersedes, the 2011 revision.

A pioneer in the field of behavioral finance presents an investment guide based on what really drives investors Perfectly timed to give readers a real edge for investing in post-crash markets Author is a leading authority on the theory and application of behavioral finance and a fixture in The Wall Street Journal and other leading media outlets Poised to become the definitive text on how investors and managers make financial decisions—and how these decisions are reflected in financial markets

High investor sentiment has been linked with opportunistic managerial behavior in the face of more optimistic investors and analysts. We extend this line of work by documenting that the likelihood of misstatements is higher when sentiment is high. Although this would suggest elevated audit risk, we posit that a contemporaneous reduction in auditors' litigation cost could drive down audit fees and going concern opinion (GCO) reporting conservatism in order to please clientele. Consistent with this notion, we document that auditors charge lower fees and report GCOs less conservatively when sentiment is high. However, this reduction in reporting conservatism is unwarranted; results reveal that auditors are less likely to issue GCOs to clients which subsequently file for bankruptcy during high sentiment periods. We conduct additional tests to examine whether auditors' litigation costs indeed vary with sentiment and document that auditors are less likely to be sued and the market reacts less negatively to misstatement announcements when sentiment is high. Collectively, our findings suggest that, although misstatement risk is increasing with sentiment, auditors' litigation risk actually declines.

We present new theory and experimental findings indicating that investors ascribe value to firms that use higher financial-reporting quality (FRQ), controlling for the influence of higher FRQ on their estimates of these firms' fundamental value. To guide our investigation, we draw on the cooperation literature in accounting, finance and psychology. We identify expanded audit reports, particularly auditor commentary, as a mechanism that credibly communicates whether a firm uses higher FRQ. Auditor commentary increases investors' willingness to pay (WTP) more to own shares of a firm using higher FRQ than a competing firm using lower FRQ. We also provide process evidence that investors perceive higher FRQ as cooperative behavior by measuring their affective responses and cognitive beliefs, which mediate the influence of audit commentary on investors' increased WTP for higher FRQ. A second experiment bolsters the link between investors' affective and cognitive responses to a firm's FRQ and perceived cooperative behavior. Overall, we contribute to the accounting literature by motivating a reinterpretation of studies on value relevance and mispricing. We also provide theory and evidence that there is greater value in expanded audit reports than previously understood, and this value likely has standard-setting and audit-pricing implications.