Seminar by Serena Morricone

Sala Seminari – I° piano, Palazzo Levi Cases, Via del Santo 33, h. 11.30

08.03.2018

Seminar by Serena Morricone, HEC Lausanne

Title

“Proactive financial reporting enforcement: audit fee and financial reporting quality effects” (co-authored by A. Florou and P.F. Pope)

Abstract
We examine costs and benefits of proactive financial reporting enforcement by the UK Financial Reporting Review Panel. Enforcement scrutiny is selective and varies by sector and over time, yet can be anticipated by auditors and companies. We find evidence that increased enforcement intensity leads to temporary increases in audit fees and more conservative accounting accruals. However cross-sectional variation across market segments suggests that increasing audit fees and improving financial reporting quality are substitute mechanisms for mitigating audit risk. Audit fees increase primarily in the less-regulated AIM segment while less reliable operating asset-related accruals are more conservative in the Main segment. Overall, our study indicates that financial reporting enforcement generates costs and benefits, but not always for the same companies.