Disclosure of fair value measurement in goodwill impairment test and audit fees |
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| Institution: | 1. National Chengchi University, Taiwan;2. National University of Singapore, Singapore;1. Aalto University School of Business, Department of Accounting, Runeberginkatu 22-24, 00100 Helsinki, Finland;2. Copenhagen Business School, Department of Operations Management, Solbjerg Plads 3, B.5.10, 2000 Frederiksberg, Denmark;1. The University of Florence, Economics and Management School, Accounting and Finance Division, Via delle Pangette 9, Building D6, 50127, Florence, Italy;2. Durham University Business School, Queen’s Campus, H115, Wolfson Building, University Boulevard, Thornaby, Stockton on Tees, TS17 6BH, England, UK;3. University of Glasgow, Adam Smith Business School, West Quadrangle, Main Building, Room G683, University Avenue, Glasgow, G12 8QQ, Scotland, UK;1. University of Texas-Arlington, United States;2. University of Houston-Downtown, United States;3. Rice University, United States |
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| Abstract: | Recent increases in the occurrence and magnitude of goodwill impairment charges highlight the increasing importance of the role of the auditor in goodwill accounting. This study examines the association between disclosures about the fair value measurement of goodwill and audit fees. We find that goodwill-related disclosures are positively related to audit fees, consistent with the idea that auditors increase their audit efforts to mitigate potential reputational and litigation losses (“audit risk effect”). Additionally, our results indicate that the information asymmetry and investor scrutiny moderate the association between goodwill-related disclosures and audit fees. One possible explanation is that auditors take goodwill-related disclosures as a signal of truthful goodwill accounting and this “signaling effect” partially offsets the “audit risk effect” of goodwill-related disclosures when information asymmetry or investor scrutiny is perceived as high. |
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| Keywords: | Goodwill Fair value Fair value disclosure Audit fee Audit risk Signaling |
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