Costs and benefits of auditors' disclosure of critical audit matters: Initial evidence from the United States |
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| Affiliation: | 1. Department of Accountancy, City University of Hong Kong, Hong Kong, China;2. School of Accountancy, California State University, Fullerton, United States of America;1. University of Colorado Colorado Springs, United States of America;2. University of North Florida, United States of America;3. The University of Texas at Arlington, United States of America;1. Idaho State University, Department of Accounting, Pocatello, ID, United States of America;2. University of Cincinnati, Lindner College of Business, Department of Accounting, Cincinnati, OH, United States of America;3. University of San Diego, Knauss School of Business, Department of Accounting, San Diego, CA, United States of America;1. Ouachita Baptist University, Frank D. Hickingbotham School of Business, Arkadelphia, AR 71998, USA;2. University of Mississippi, E. H. Patterson School of Accountancy, University, MS 38677, USA;1. Department of Accounting, College of Business Administration, Marquette University, 1530 W Wisconsin Ave, Milwaukee, WI 53233, United States of America;2. Department of Accounting & Finance, Richards College of Business, University of West Georgia, 1601 Maple St, Carrollton, GA 30118, United States of America |
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| Abstract: | In an effort to make audit reports more informative to financial statement users, the Public Company Accounting Oversight Board (PCAOB) requires an expanded audit report in which auditors are required to disclose critical audit matters (CAMs). The new standard (AS 3101) became effective for audits of financial statements of large accelerated filers for fiscal years ending on or after June 30, 2019. Using a sample of annual reports of large accelerated filers with and without CAM disclosures, we examine the costs and benefits of the mandatory disclosure of CAMs in auditors' reports. Our evidence suggests that compared to auditor reports reporting no CAMs, the presence of a single CAM disclosure in the auditor's report provides incremental information to equity investors without a significant increase in audit costs. However, using the benchmark of a single CAM disclosure, multiple CAMs in an auditor's report results in higher audit fees and longer audit delays. |
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