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Joint Audit, Game Theory, and Impairment-Testing Disclosures


  • Luc Paugam

    () (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Jean-François Casta

    () (DRM-Finance - DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)


We examine the consequences on impairment testing disclosures of auditor-pair choice made by French listed companies where two (joint) auditors are required by law. Managers are likely to manipulate impairment-testing disclosures since it relies on unverifiable fair value estimates (e.g., goodwill). From a simple game theory model, we demonstrate that a Big-4 auditor paired with a non-Big 4 auditor increase auditors' incentives to force firms to disclose more because Big 4 auditor fully bears reputation costs. Using a disclosure score for firms composing the French SBF 120 index from 2006 to 2009, we provide evidence that combination of Big 4 / non-Big 4 auditors generate higher impairment-related disclosures levels whereas the other combinations, i.e. two Big 4 or two non-Big 4, tend to decrease the level of impairment-related disclosures. These empirical results are consistent with our model predictions and robust to various controls variables (e.g., size, risk, year and firm fixed effects).

Suggested Citation

  • Luc Paugam & Jean-François Casta, 2012. "Joint Audit, Game Theory, and Impairment-Testing Disclosures," Post-Print halshs-00671613, HAL.
  • Handle: RePEc:hal:journl:halshs-00671613
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    References listed on IDEAS

    1. Ramanna, Karthik, 2008. "The implications of unverifiable fair-value accounting: Evidence from the political economy of goodwill accounting," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 253-281, August.
    2. Fields, Thomas D. & Lys, Thomas Z. & Vincent, Linda, 2001. "Empirical research on accounting choice," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 255-307, September.
    3. Jere Francis & Chrystelle Richard & Ann Vanstraelen, 2006. "Assessing France's Joint Audit Requirement: Are Two Heads Better Than One?," Post-Print halshs-00153518, HAL.
    4. Cook, J. & Hatherly, D. & Nadeau, L. & Thomas, L. C., 1997. "Does cooperation in auditing matter? A comparison of a non-cooperative and a cooperative game model of auditing," European Journal of Operational Research, Elsevier, vol. 103(3), pages 470-482, December.
    5. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    6. repec:bla:joares:v:29:y:1991:i::p:31-54 is not listed on IDEAS
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    Joint Audit; Impairment Test; Game Theory; Prisoner's Dilemma; Disclosures; IAS 36;

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