Joint Audit, Game Theory, and Impairment-Testing Disclosures
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).
|Date of creation:||29 Mar 2012|
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|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00671613v2|
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