Acknowledgment: This thesis has benefited from insightful comments from Ruben Hoving, Hanna van den Berg, Simone Goijaerts, and Jorrit de Vries. I am also grateful for helpful suggestions from my supervisor Prof. dr. D. de Waard
The extended auditor’s report: value added or
waste of time? – A qualitative approach
Beryl Dekker
University of Groningen
ABSTRACT: Resulting from society-wide debates, auditors of public-interest entities in
the Netherlands and the United Kingdom (UK) are obliged to issue an extended report. The extended report aims to reduce the audit expectation gap by enhancing communication between auditors and the intended users, thereby restoring trust in the audit profession. Prior studies into the extended report focused on the UK. This research expands existing knowledge by investigating the effects of the extended report in The Netherlands. In particular, this study examined whether objectives of standard setters have been met. Semi-structured interviews with the Royal Netherlands Institute of Chartered Accountants (NBA), audit partners, and nonprofessional investors were conducted to gain insight into their perspectives regarding the extended report. Our findings revealed that nonprofessional investors do not involve the auditor’s report in their decision making process. Therefore, objectives of the extended reports have not been met. In order to close the expectation gap, intended users and their information requirements should be identified. Our findings are of interest to standard setters and auditors, since they have to (re-)consider the efficiency of current standards and content of auditors’ reports.
Keywords: Audit expectation gap, Extended auditor’s report, Key audit matters, Audit scope, Materiality, Nonprofessional investors.
The extended auditor’s report: value added or
waste of time? – A qualitative approach
Master Thesis Accountancy & Controlling – Track Accountancy
Beryl Dekker
University of Groningen
University of Groningen Faculty of Economics and Business
MSc Accountancy and Controlling – Track Accountancy June 25th 2018
Zernike Campus, Duisenberg building Groningen, Netherlands, 8747 AE
(06)230 755 37
e-mail: b.dekker.4@student.rug.nl Beryl Dekker
S2569949
Supervisor: Prof. dr. D. de Waard Co-assessor: Dr. S. Girdhar
3
Table of content
I. INTRODUCTION ... 4
II. BACKGROUND: THEORETICAL FRAMEWORK AND LITERATURE REVIEW ... 7
THEORETICAL FRAMEWORK ... 7
The auditor’s report. ... 7
Audit expectation gap. ... 9
LITERATURE REVIEW ... 10
Persistent existence of the audit expectation gap. ... 10
Modifications on the auditor’s report. ... 10
III. METHODOLOGY ... 12
DATA ANALYSIS ... 13
VALIDITY AND RELIABILITY ... 13
IV. RESULTS ... 14 FIRST PHASE ... 14 Conclusion. ... 16 SECOND PHASE ... 17 Results NBA. ... 17 Results auditors. ... 18
Results nonprofessional investors. ... 21
V. DISCUSSION AND CONCLUSIONS ... 24
VI. BIBLIOGRAPHY ... 28
VII. APPENDICES ... 33
APPENDIX A: INTERVIEW QUESTIONNAIRE NBA... 33
APPENDIX B: INTERVIEW QUESTIONNAIRE AUDITORS ... 35
4
I. INTRODUCTION
The financial crisis of 2008, together with several accounting scandals (e.g. WorldCom, Royal Ahold, and Parmalat) started a public debate regarding the audit profession. Specifically, accounting scandals in the banking sector raised questions regarding quality and effectiveness of audits (Sikka, 2009). After the collapse of the fourth-largest investment bank of the United States, Lehman Brothers, society argued that the audit profession failed to properly inform investors about continuity issues (Carson et al., 2013; Sikka, 2009). Together, these accounting scandals resulted in renewed interest in the auditor’s reporting (Carson et al., 2013).
Regulators and standard setters responded to this renewed interest by increasing their focus on auditor’s communication by the audit report. The traditional audit report was suspect to a lot of criticism and is perceived as inadequate in enhancing the confidence of its intended users (Backof et al., 2017; Craig et al., 2016; Carson et al., 2013; Asare and Wright, 2012; Bedard et al., 2012). Consequently, several legislators, among which the Royal Netherlands Institute of Chartered Accountants (NBA), introduced changes to their standards for audit reports. These changes require auditors of public interest entities to report on materiality applied during the audit, audit scope and on key audit matters identified. Together, these modifications resulted in “the extended auditor’s report” – from here on referred to as the extended report (Christensen et al., 2014).
With the extended report, standard setters attempted to enhance communication between auditors and intended users. Enhanced communication improves auditor transparency and informativeness, and therefore users’ understanding of the audit (IFAC, ISA 701). Enhanced understanding of the audit results in alignment of auditor’s expected and actual responsibilities, thereby reducing the audit expectation gap (IFAC, ISA 701). The audit expectation gap results from misalignment between what intended users expect from the auditor and what they actually receive from the auditor (Duréndez Gómez-guillamón, 2003; Porter, 1993).
Prior studies investigated and confirmed the audit expectation gap, thereby exploring ways to reduce it (Litjens et al., 2015; Sidani, 2007; Best et al., 2001; McEnroe and Martens, 2001; Porter, 1993; Liggio, 1974). The actual effects of attempts to reduce the gap are, however, insufficiently addressed. Therefore, the main purpose of this study is to investigate whether objectives of standard setters have been achieved. Effectiveness of new legislation depends on the degree to which this legislation is able to reduce the audit expectation gap (Asare and Wright, 2012). Hence, adoption of the extended report will be effective when it is able to reduce the gap. Consequently, the main research question of this study is whether the extended report helped reduce the expectation gap. To verify this, the following sub-research questions were formulated:
5 i) To what extent does the extended report enhance communication between
auditors and nonprofessional investors?
ii) To what extent helps the extended report align expected and actual auditor responsibilities?
iii) To what extent does the extended report influence nonprofessional investors’ confidence in the audit profession?
This study focused on nonprofessional investors since they have limited access to corporate information, and thus make their investment decisions less informed than professional investors. Therefore, nonprofessional investors are perceived to be extensive users of the auditors’ report (Sutton et al., 2009).
As pointed out previously, researchers have not treated the effects of attempts to reduce the gap in much detail. The limited studies on the effects of the extended report highly focused on auditor liability. Whilst some researchers demonstrated decreased auditor liability (Brasel et al., 2014; Brown et al., 2014), others found no significant effect (Backof et al., 2014; Gimbar et al., 2014). Focusing on auditor liability, these studies investigated a second-order effect of the new legislation. However, this provided no insight whether and to what extent preset objectives have been achieved.
Prior studies on the informativeness of the extended report highly focused on the United Kingdom (UK). Most likely due to the fact that the UK was the first country which introduced the extended report (Lennox et al., 2018). Using a difference-in-differences research design, Gutierrez et al. (2018) measured decision usefulness of the extended report by analyzing incremental market reaction. Consistent with Lennox et al. (2018), the authors found no evidence that the UK’s extended report is informative to users. Perhaps the most serious disadvantage of this method is the difficulty to isolate the incremental market reaction on the extended report from other information revealed in the annual report (Gutierrez et al., 2018). Moreover, their results might not be generalizable to other countries due to the institutional nature of the UK (Lennox et al., 2018).
Christensen et al. (2014) investigated the impact of key audit matters on nonprofessional investors. Using an experimental design, the authors examined the decisions of investors receiving the traditional audit report, compared to investors receiving an audit report including key audit matters. The authors found investors receiving an audit report including key audit matters more likely to stop considering an entity as an investment opportunity. Christensen et al. (2014) centered their study solely around key audit matter regarding fair value estimates. Investors could however react differently to key audit matters on other issues. Moreover, the extended report comprehends more attributes than just key audit matters.
6 Christensen et al. (2018) followed a 2 x 3 + 1 between-participant experimental design to analyze the effects of materiality disclosure. Their results appear to demonstrate investors struggle to interpret materiality. Concurrently, the authors suggest investors do not view materiality as informative for their investment decisions. This study only addressed materiality, again, the extended report comprehends more attributes.
Our study fills this gap by providing insight into expectations and perceptions of different stakeholders regarding the entire extended report. Additionally, the previously mentioned studies measured informativeness of the extended report using quantitative approaches, mainly reflecting the consequences of investors’ actions. Using a qualitative design, this study reflects participants’ opinions and beliefs, rather than consequences of their actions (Lev and Zarowin, 1999). Furthermore, as earlier discussed, previous literature highly focused on the UK To the best of our knowledge, this is the first study to investigate the effects of the extended report in The Netherlands.
Next to its academic relevance, our findings are particularly interesting for standard setters since standard setting is an iterative process and therefore should be guided by extensive debates (Bédard et al., 2016). By studying the expectations of nonprofessional investors and evaluating to what extent the current auditors’ reports are perceived to fulfil these expectations, standard setters can modify their standards more efficient and better targeted. Moreover, results of this study can be interpreted as a guideline for auditors during the preparation of their reports. Thus, this study contributes to both, existing literature and practitioners work by providing insight into the effects of the extended report.
The remainder of this paper is organized as follows. First, a theoretical framework will discuss the auditor’s report and the expectation gap. Afterwards, a literature review will provide an overview on current studies regarding the auditor’s report and the expectation gap. Third, the research methodology will be discussed. Chapter four presents the results and chapter five concludes with a conclusion and discussion.
7
II. BACKGROUND: THEORETICAL FRAMEWORK AND LITERATURE
REVIEW THEORETICAL FRAMEWORK
The auditor’s report. Following the agency theory, problems might arise due to
separation of ownership and control (Bosse and Phillips, 2016). Shareholders (principals) employ managers (agents) to create value for them. It is assumed that both agents and principals are self-interested utility maximizers (Hoenen and Kostova, 2015; Jensen and Meckling, 1976). Therefore problems might arise when i) their interests are not aligned and ii) agents have access to more and/or better information than principals (i.e. information asymmetry). Such agency problems constitute the opportunity for agents to not act accordingly the best interests of principals (Bosse and Phillip, 2016; Francis, 2004; Jensen and Meckling, 1976). The existence of information asymmetry requires need for monitoring, thereby the necessity of external confirmation by an independent auditor (Robinson et al., 2017; Bosse and Phillips, 2016; Allee & Yohn, 2009). 1 Thus, the auditor’s purpose is to enhance confidence of intended users of financial statements, hence auditors serve a social function (IFAC, 2012; Bedard et al., 2012; Fadzly and Ahmad, 2004). The auditor accomplishes this by expressing his/her opinion, whether financial statements were prepared in accordance with applicable law and regulations (IFAC, ISA 200; Healy and Palepu, 2001).
Auditors as well as auditor’s reports have been subjected to criticism since the late 1800s (Chandler and Edwards, 1996). Early audit opinions were presented unstandardized, auditors only certified whether statements presented a fair view. The report included only a few sentences, varying in level of detail, and left its users uninformed about the level of assurance provided (Church et al., 2008). During past years, the auditor’s report underwent several modifications, mainly focusing on information regarding auditor responsibilities and audit specifics (Church et al., 2008). Consequently, the auditor’s report evolved from an unstandardized report into a pass or fail report and, eventually, into todays extended report.
The extended report was initiated in 2013 and requires auditors of public interest entities to report materiality applied during the audit, audit scope and, key audit matters identified. There is no unambiguous definition of materiality. The International Auditing and Assurance Standards Board (IAASB) defines materiality as ‘’The auditor’s determination of materiality is a matter of professional judgment, and is affected by the auditor’s perception of financial information needs of users of the financial statements’’ (ISA 320, paragraph 4, p.314-315). The auditor assesses materiality and explains methods used to determine it (NBA, 2014). By reporting audit scope, auditors inform intended users about the audit of components. Key audit matters are matters addressed during the audit that satisfy one or more of the following criteria: i) involve difficult, instinctive or
8 complicated judgement, ii) are difficult to collect sufficient appropriate audit evidence on, and iii) are difficult in wording an opinion on the financial statements (Christensen et al., 2014). In other words, key audit matters describe the, according to the auditor, most important and relevant matters addressed during the audit. Auditors should elaborate on risks involved and audit procedures performed on these risks. Key audit matters are perceived to enhance information content since discussed risks are entity specific (NBA, 2014).
Regulatory changes, such as the modified audit standards, are often associated with accompanying changes in audit quality (Beattie et al., 2013). There is no unambiguous definition of audit quality, however, DeAngelo (1981) defined audit quality as “the market-assessed joint probability that a given auditor will both (a) discover a breach in the client’s accounting system, and (b) report the breach” (p. 186). By introducing the extended report, standard setters modified their audit standards, therefore audit quality might be affected. However, standard setters attempted to enhance auditor transparency, and not the underlying work performed by the auditor. Therefore, the Financial Reporting Council (FRC) does not expect that modified standards will affect audit quality (Guitierrez et al., 2018).
Following the legitimacy theory, organizational survival depends on whether an organization operates within norms and values of society, the so called “social contract” (Deegan, 2006; Hooghiemstra, 2002). As norms and values of society may evolve over time, organizational legitimacy is not static and therefore should be viewed in context of time and place. Therefore, organizations need to adapt to their changing environments to remain legitimate (Deegan, 2006). Attempting to maintain organization legitimacy, firms may seek structures and patterns from other firms, which they perceive to be more legitimate and/or successful (DiMaggio and Powell, 1983). This is referred to as isomorphism and apprehends the process of homogenization. Isomorphism comes in various forms, namely, coercive, mimetic or normative isomorphism (DiMaggio and Powell, 1983). Firstly, homogenization resulting from pressure exerted by parties on which organizations are dependent, is referred to as coercive isomorphism. Secondly, mimetic isomorphism comprehends homogenization resulting from uncertainty. Mimetic isomorphism could result either from technological innovation, unambiguous goals, or environmental uncertainty. Lastly, normative isomorphism results from professionalization (DiMaggio and Powell, 1983).
The modified audit standards can be viewed as a change in audit firms’ environment, and thus as a change in their social contracts. Consequently, audit firms failing to properly adapt to the modifications might result into compromised organizational legitimacy, which may cause serious problems (Rhunke and Schmidt, 2014; Power, 2003).
9
Audit expectation gap. Presence of the audit expectation gap directly results from
misalignment between users’ expectations of auditors’ services and actual received services. Society expects auditors to provide perfect assurance, auditors are however limited, thereby providing only reasonable assurance (Fadzly and Ahmad, 2004).
The audit expectation gap has extensively been researched during the past 45 years. In 1974, Liggio introduced the expectation gap to the audit profession. The audit expectation gap is defined as the difference between expected performance amongst auditors and intended users of financial statements and the auditor’s report (Liggio, 1974). Porter (1993) redefined this definition into “the gap between society’s expectations of auditors and auditors’ performance, as perceived by society” (p. 50). The gap comprehends two aspects, the reasonableness gap and the performance gap (Dixon et al., 2006; Porter, 1993). The reasonableness gap refers to “the gap between what society expects auditors to achieve and what the auditors can reasonably be expected to accomplish” (Dixon et al., 2006 p.294). The performance gap addresses “the gap between what society can reasonably expect auditors to accomplish and what auditors are perceived to achieve” (Dixon et al., 2006 p.294). The performance gap can be divided into “insufficient standards” and “insufficient performance”. The former refers to the gap between what can reasonably be expected from auditors and the existing responsibilities defined by law and legislation. The latter represents the gap between what is desired by audit standards and auditor performance as perceived by users of the audit report (Dixon et al., 2006).
Figure 1 summarizes the different aspects of the audit expectation gap (Porter, 1993).
10
LITERATURE REVIEW
Persistent existence of the audit expectation gap. Researchers extensively studied
and confirmed existence of the audit expectation gap in many fields; New Zealand (Porter, 1993; Porter et al., 2012), the United Kingdom (Porter et al., 2012), Singapore (Best et al., 2001), the United States (McEnroe and Martens 2001), Lebanon (Sidani, 2007), and The Netherlands (Litjen et al., 2015). McEnroe and Martens (2001) and Sidani (2007) categorize the existing gap as the previously mentioned reasonableness gap – unreasonable expectations from society.
Various researchers examined the persistent existence of the audit expectation gap. Humphrey et al. (1992) identified the continually changing environment and expectations, and the nature of the audit profession as critical issues maintaining the gap. The authors emphasize the influence of a lack of understanding amongst users of the audit report. Sikka et al. (1998) concur with this line of reasoning by arguing that the origin of the gap lies within misalignment between the nature and scope of the audit profession. Buyers of auditing services, legislators, and auditors have different interests regarding the auditor’s report, resulting in a conflicting relation. Where auditors strive to remain organizational legitimacy, buyers and legislators strive to ensure public trust. Rhunke and Schmidt (2014) further elaborate this argumentation and state the gap directly results from public failure. Concurrently, there seems to be some misunderstanding amongst auditors regarding their own responsibilities.
Prior studies suggested several modifications to bridge the gap. Schelluch and Gay (2006) argued that auditors express their findings in way too difficult wording. Reports easier to read could significantly enhance the communicative value of the auditor’s report. Therefore, language alteration might help closing the gap (Siddiqui et al., 2009; Schelluch and Gay, 2006). Several studies suggested the gap can be reduced by educating society about auditor responsibilities (Siddiqui et a., 2009; Sidani, 2007; Fadzly and Ahmand, 2004; McEnroe and Martens, 2001). Rhunke and Schmidt (2014) argued the audit expectation gap can be narrowed by external audit modification and enhancing auditor independence. These suggestions demonstrate that heart of the expectation gap primarily lies within the earlier elaborated reasonableness gap. The following section addresses various modifications on the auditor’s report, attempting to reduce this expectation gap.
Modifications on the auditor’s report.2 Following several financial scandals and
economic crises, modifications on the auditor’s report were implemented. The 1929 stock market crash resulted in recommendations to report whether audited organizations followed particular accounting principles. During the following years, this elaborated into a required “scope and opinion paragraph”. Next, standard setters increased their focus on wording used in the auditor’s report. This leaded to several language alterations, for example, the
11 transition from “fairly present” to “present fairly”. From 1947 onwards, qualified opinions were permitted, and since 1961 several disapproving opinions were introduced (Church et al., 2008). In 1988, “expectation gap standards” required auditors to discuss their responsibilities, audit procedures performed, and level of assurance provided (Gray et al., 2011). Following accounting scandals like Enron and WorldCom, the Sarbanes-Oxley (SOx) act became effective in 2002. SOx aimed at improving audit quality and reducing fraud. To facilitate this improvement, the Public Company Accounting Oversight Board (PCAOB) was created. The PCAOB is responsible for monitoring public entity auditors, thereby ensuring informative, unbiased, and independent audit reports (Coates, 2007). According to SOx section 404, public entities are obliged to assess and report on their internal control. Subsequently, auditors are required to form an opinion on management’s assessments (Krishnan and Visvanathan, 2007). Although SOx applies to U.S. public companies, its impact is widespread, and amongst others, inspired the Dutch corporate governance code (Wieland, 2005). Together, these codes resulted into a new standard auditor’s report, including statements about internal control. In 2003, the IAASB proposed several changes, becoming effective in 2006. These changes, again, aimed for enhancing intended users’ understanding of auditor’s responsibilities and the auditor’s report (Gray et al., 2011).
The financial crisis of 2008 resulted in renewed interest into the audit profession and its ability to fulfill its social role. This renewed interest resulted in the introduction of the earlier explained extended report. Several researchers questioned the added value of the extended report. Sirois et al. (2014) found evidence that users view the extended report as a reading guide for annual reports. The authors however express their concerns that intended users place too much emphasis on key audit matters, thereby reducing their attention to other information provided. Moreover, due to uncertainties about actual content of the extended report and possible legal consequences, there are concerns mimetic isomorphism might take place (Brazel et al., 2011)3. The process of mimetic isomorphism might result in uniformity amongst auditors’ reports (de Freitas and de Aquino Guimarães, 2007). Uniformity ultimately could result in standard boilerplate wording, and thus in little added value for users (Brazel et al., 2011; Church et al., 2008). These concerns seem to be justifiable as recent research by Boven (2018) and Bolk (2018) provided evidence of the existence of mimetic isomorphism regarding the extended report.
Attempts of standards setters mostly focused on improving users’ understanding of the audit. Several modifications attempted to align expected and actual auditor responsibilities. Despite such changes the expectation gap persists to exist, indicating these adjustments are inefficient. This study therefore aims to investigate whether the extended report helps reducing the expectation gap.
3 www.accountant.nl
12
III. METHODOLOGY
This study followed a grounded-theory approach consisting two phases. During the first phase, explorative interpretative research on the extended report was carried out. The objective was to identify patterns and particularities (if present). To facilitate this, the following steps were subsequently followed, for each year included in our dataset (2013-2016):
Table 1
Research design phase 1
Step 1: Investigate how many auditor’s included the attributes of the extended report. Step 2: Determine the average wordcount per extended report attribute.
Step 3: Roughly scan all auditor’s report, focusing on format (e.g. presence of infographics).
Identify differences and similarities.
Step 4: Critically read and evaluate a sample of 32 reports. Identify whether attributes of the extended report are included. Focus on content and words used.
Our total dataset consisted of 292 (extended) reports, issued over 2013 up to and including 2016. The dataset includes information on key audit matters and materiality, audit scope however was not included. Moreover, the dataset provided no information regarding materiality wordcount. Therefore, this information was hand collected. To facilitate this, auditor’s reports in word format were used, which were already available in our dataset. Regarding the fourth step, a sample selection of 32 reports was made. This sample consisted of two reports per Big 4 (Deloitte, EY, KPMG, PwC) audit firm, per year. Findings of the first phase were used as input for explorative interviews with the NBA advisory board and auditors employed at the Big 4 audit firms.
During the second phase, semi-structured interviews were conducted with audit partners of the Big 4 audit firms, the NBA advisory board, and nonprofessional investors. We opted for interviews to assess the added value of the extended report since interviews reflect participants’ opinions and beliefs, rather than reflecting the consequences of their actions (Lev and Zarowin, 1999). Moreover, we preferred semi-structured interviews over other forms since this allowed the interviewers to elaborate on insights brought up during the interviews, whilst ensuring validity. Interviews were carried out by both my fellow MSc student Ruben Hoving and myself.
An interview with a member of the NBA advisory board was conducted to gain a thorough understanding of the motivation and rational of the new legislation. Interview questions were prepared in advance (Appendix A).
Eleven audit partners employed at Big 4 audit firms were interviewed, including at least one partner of every firm. The main purpose of these interviews was to provide insight
13 into the considerations made drawing up the report. Interview questions were prepared in advance (Appendix B). Only partners employed at Big 4 audit firms were included since the Big 4 are leading auditing listed companies.
Interviews with nonprofessional investors were carried out to gain insight into whether investors use the auditor’s report in their decision-making process, and, if so, how investors perceive the (extended) report. This research focused on nonprofessional investors since they are perceived to be extensive users of the auditors’ report (Sutton, Arnold, Bedard and Phillips, 2009). Nonprofessional investors are defined by their “Vereniging van Effected Bezitters” or “de Ronde Tafel” membership.
DATA ANALYSIS
Data collection and analysis were carried out simultaneously during both phases, accordingly to Corbin and Strauss (1990). Hereby, it is assured that all relevant aspects concerning the extended report are captured during interviews. This was facilitated by extensive discussions with my fellow MSc student, providing new insights. All interviews were tape recorded and transcribed, providing raw data for analyses.
Data was analyzed by coding the transcripts. Grounded theory distinguishes three basic types of coding: open, axial, and selective (Corbin and Strauss, 1990). During this study, all three types were used. First of all, open coding was used to discover differences and similarities between respondents’ answers. During this phase, text fragments were marked in word and labeled, resulting into conceptual categories and subcategories. Subsequently, these transferred were transferred into an Excel file, enabling filtering. Thereafter, axial coding was used to link categories with their subcategories. Lastly, selective coding was used to unify the by axial coding defined categories into seven core categories (Corbin and Strauss, 1990).
VALIDITY AND RELIABILITY
Due to this study’s highly subjective character, researcher bias may occur. To enlarge reliability, interpretation of interview transcripts was systematically structured. Following Lachmann et al. (2016), data, concepts, and categories were constantly questioned, compared, and where needed adjusted, securing construct validity. To further reduce researcher bias, transcripts were independently coded by two researchers (Lachmann et al., 2016; Corbin and Strauss, 1990). In addition, several transcripts were coded twice.
14
IV. RESULTS FIRST PHASE
All reports included in the dataset were roughly scanned and analyzed (step 3). Afterwards, two reports per Big 4 audit firm, per year, were analyzed in detail (step 4).
Table 2
Descriptive statistics 2013
Variable Percentage included into
auditor’s report
Average wordcount
Materiality 7.46 % 134
Audit Scope 16.42 % 107
Key Audit Matters 34.33 % 518
Table 1 shows descriptive statistics related to auditor’s reports issued over financial statements regarding 2013. The 2013 dataset consisted of 73 companies. Entities not issuing an annual report were excluded, resulting in a dataset of 67 entities.
Most reports were drawn up conform the standard, old format, providing limited information on materiality, audit scope, and key audit matters. Table 1 shows limited inclusion of extended report attributes. Only five auditor’s reports (7.46%) included a materiality section, mostly based on “profit before tax” or variation. Eleven auditor’s reports (16.42%) included audit scope, and 23 (34.33%) included key audit matters. The amount of key audit matters varied from zero to six.
The reports are very similar to another, in wording and content. None of the reports included infographics or illustrations.
Table 3
Descriptive statistics 2014
Variable Percentage included into
auditor’s report
Average wordcount
Materiality 84.29 % 211
Audit Scope 84.29 % 366
15 Table 2 shows descriptive statistics regarding auditor’s reports issued over 2014. After adjusting for entities not issuing an annual report, the dataset consisted of 70 companies.
From 2014 onwards, auditors are obliged to issue an extended report. Nevertheless, only 59 auditor’s reports (84.29%) indeed included attributes of the extended report. Consequently, eleven reports did not include materiality, audit scope, and key audit matters. Subsequent research revealed these audits were not performed following Dutch audit standards, therefore auditors were not obliged to issue an extended report. “Profit before tax” and variations are still most used bases for materiality. Although, some auditors chose “equity”, “assets”, or “revenue” as base for materiality.
Again, similarities in wording and content were observed. Two Big 4 audit firms introduced a summary on audit approach, containing a short description of materiality, audit scope and key audit matters. Moreover, these firms included infographics in their reports. On average, the reports became much more extensive, substantiated by increases in wordcount of materiality (57.46%), audit scope (242.06%), and key audit matters (70.27%).
Table 4
Descriptive statistics 2015
Variable Percentage included into
auditor’s report
Average wordcount
Materiality 88.89 % 219
Audit Scope 88.89 % 388
Key Audit Matters 88.89 % 259
Table 3 shows descriptive statistics regarding (extended) reports issued over 2015. After adjusting for companies not issuing an annual report, the dataset consisted of 72 companies. Regarding the financial year 2015, 64 auditor’s reports (88.89%) included all extended report attributes. Consequently, eight did not. Again, these audits were not performed following Dutch audit standards. The before mentioned bases for materiality were also reflected in 2015. A novelty is however materiality based on an average, for example, a percentage of profit before tax, based on the average during the previous three years.
Remarkable, the, in 2014 initiated summary, was adopted by the other Big 4 audit firms. Moreover, one audit firm included an observation/conclusion regarding key audit matters, whereas most audit firms only distinguished between a description of specific key audit matters and how they assessed them. Again, similarities in wording and content were observed. Lastly, infographics were more extensively used.
16
Table 5
Descriptive statistics 2016
Variable Percentage included into auditor’s
report
Average wordcount
Materiality 88.57 % 251
Audit Scope 88.57 % 344
Key Audit Matters 90.00 % 1044
Table 4 shows descriptive statistics related to (extended) reports issued over financial statements regarding 2016. After adjusting for entities not issuing an annual report, the dataset consisted of 70 companies.
Regarding financial year 2016, 63 auditor’s reports (88.57%) included all attributes of the extended report. Consequently, seven auditors did not issue a (complete) extended report, again these audits were not performed following Dutch audit standards. There were no major changes in the bases for materiality.
The in 2015 initiated “conclusion” has been adopted by the other Big 4 audit firms. Although only the initiating firm made a visible distinction by adding an extra column stating: “our observation”, other firms incorporated an observation or conclusion in their main text. These observations or conclusions are very similar in content and meaning, for example: “Our audit approach did not indicate material findings” and “We agree with the assumptions used by management…” (SBM Offshore annual report 2016, p.231; TomTom annual report 2016, p.117). Two audit firms adopted a non-financial key audit matter in some of their reports. Moreover, one also explained materiality used with regard to this key audit matter. Again, reports were similar in wording and content.
Conclusion. Objective of the first phase was to identify patterns and particularities,
if present. The above presented results demonstrate the extended report has become more extensive over the years. Moreover, conform results of Boven (2018) and Bolk (2018), the results indicate existence of mimetic isomorphism.
17
SECOND PHASE
Semi-structured interviews were conducted with a member of the NBA advisory board, audit partners employed at Big 4 audit firms, and nonprofessional investors. All interviews were tape recorded and transcribed.
Results NBA.4 The interview conducted with a member of the NBA advisory board
helped to gain more detailed insight into the motivation and rational of the new legislation. Trigger new legislation. In retrospect, the trigger for the new legislation seemed to
be the financial crisis of 2008 and its far-reaching consequences. As our respondent stated: ,,In review, the financial crisis had huge impact. Lots of people, even politicians, did not appreciate the fact that systemic banks were bailed out by the government while they just received unqualified audit opinions. This was the major reason to adjust standards.”
Investors and politicians did not understand how auditors could give unqualified audit opinions to banks which appeared to be in serious trouble. Consequently, this phenomenon received a lot of high-level political attention, both in Europe and the United States. Politics were all set to intervene, therefore the NBA decided to formulate new standards, in anticipation of international standards.
Content extended report. Our respondent pointed out that general and universal
texts were no longer sufficient. Therefore, aim of the extended report was to create more entity specific insight for users, mainly accomplished by key audit matters since those are highly entity specific. Although risks might be industry specific, responses to these risks will differ per entity.
According to our respondent, added value of materiality lies primarily in clarifying that the audit aims to verify whether financial statements present a true and fair view. Thus, materiality helps to emphasize that financial statements are not audited with an accuracy of one decimal.
Since there is no need to audit everything, audit scope helps to explain what work the auditor performed. Explaining the risks the auditor identified and the response to those risks helps bridge the expectation gap.
Added value extended report. Overall, our respondent stated that the added value of
the extended report is threefold. First of all, the extended report can serve leverage to require clients to be more thorough in their reporting. Second, auditors are now obliged to audit “other information” included in the financial reports, which could indicate higher
4 Disclaimer: this is a private, personal statement and does not reflect the statement of the NBA as a professional body.
18 audit quality. Recent literature on the relationship between the extended report and audit quality are however inconclusive. Reid et a. (2018) suggest improved audit quality, Gutierrez et al. (2018) however found no such evidence. Lastly, the extended report serves as a means to close the expectation gap by clarifying auditor’s role and responsibilities. Our respondent stated that this information may not only be of great importance for investors but also for governments, tax authorities, and employee insurance administration.
Results auditors. Interviews conducted with audit partners employed at Big 4 audit
firms helped to gain insight into the preparation of the extended report. Also, it gave insight into the perception of audit partners regarding the added value of the extended report and existence of the expectation gap.
Table 6
Descriptive statistics auditors
- -/+ + Total
Key audit matters 2 4 5 11
Materiality 3 3 5 11
Audit scope 2 1 8 11
Communication 2 6 3 11
Expectation gap 4 7 - 11
- No added value/not enhanced/not reduced; -/+ little added value/partially enhanced/partially reduced; + added value/enhanced/reduced
Adoption attributes extended report. As table 5 shows, there are various views on
the added value of adopting key audit matters, materiality, and audit scope into the auditor’s report. The question whether respondents appraise the adoption of key audit matters as added value for the auditor’s report provided a range of opinions. One respondent clearly thought it to be of added value, as literally stated:
,,I actually think it’s good! It provides more direction and clarity. I think it enhanced communication.”
Another respondent however reacted less positive:
,,I mean, the information adopted in these reports are three key audit matters in boilerplate languages. That gets users absolutely nowhere.”
Same accounts for materiality, some respondents perceived it as added value since it gives users more insight into the work performed by the auditor. Others reasoned in accordance
19 with findings of Christensen et al. (2018), and believed materiality is too difficult to explain and therefore only creates confusion.
Regarding audit scope, there was considerably less variation in the nature of responses. Generally, respondents perceived adoption of audit scope as added value.
Communication. Overall, there seems to be consensus that the extended report
(partially) enhanced communication between auditors and nonprofessional investors. Many respondents stated the extended report helps them to enhance communication and to work more transparent. Respondents argued the extended report gives nonprofessional investors more insight into the work performed by the auditor. This was mostly experienced during shareholders meetings, shareholders asked more questions than before issuance of the extended report. Several auditors stated the increased transparency in the auditor’s reports also enables them to compare their work and reports with others. As one of audit partner stated:
,,Firstly, we consider a benchmark. We assess what other firms publish and we form our report accordingly.”
The perceived consequences of this comparison are mixed. On the one hand, auditors argued that comparing amongst audit firms leads to sharper notes and explanations. On the other hand, auditors are concerned that constant comparison may lead to standard boilerplate texts.
Concerns for boilerplate texts appeared in several interviews. Various auditors stated reports already contain a large amount of boilerplate language. Some stated this decreased added value of extended reports. Others argued that similarities are logical since entities are confronted with industry specific risks. Information therefore, they argued, has to be viewed in a certain industry specific context. Again, recent studies on the extended report revealed evidence of the existence of mimetic isomorphism (Bolk, 2018; Boven, 2018). Therefore, concerns seem to be valid.
Expectation gap. A small majority of the respondents thought, or at least hoped, the
extended report partially helped to reduce the expectation gap. However, many stated as well that the extended report alone is not enough to close the gap. One of their main concerns seemed to be that information requirements of intended users are unclear. As one respondent argued:
,,There is more information available, but I need to know the information requirements. I can display my opinion and perform extra tasks, but more important is what should I do, what is required.”
20 Moreover, respondents perceived a lack of knowledge and unreasonable expectations regarding their work, indicating the persistent existence of the reasonableness gap. Intended users often do not know how far auditor responsibilities reach. As one respondent stated:
,,I mean, I can’t see everything, but society expects me to audit everything. That is the expectation gap, I think, which needs to be closed.”
Therefore, several respondents accentuated the importance of making responsibilities of management, board of directors and auditors clear for intended users.
,,The expectation gap is a gap which needs to be bridged, simply by clarifying the different parties within the framework.”
They however emphasized that the extended report alone might not be sufficient.
Work load. Overall there seems to be joint consensus regarding the heavy work
burden involved with the extended report. The extended report is difficult to draw up, as it contains a lot of text for which correct terms and wording must be used. Besides, there are concerns about the readability of the reports, which are increasing in content.
Leverage. The interview with the NBA member indicated that one of the
contributions of the extended report might be to serve as some kind of leverage. Opinions on this statement were mixed. Some of the respondents indeed perceived the extended report as leverage:
,,It is some kind of ultimate leverage, you should not use it too much. But, yes, it is there and I have seen it being used in practice.”
Others however disagreed:
,,I do not think that the auditor’s report serves as an extra leverage. It has not been used for that purpose.”
Added value extended report. Concluding, almost all respondents considered the
extended report as added value for investors. Mainly because the enhanced insights investors gain by the extended report. Consistent with evidence provided by Sirois et al. (2014), several respondents suggested the extended report may function as a reading guide for investors when reviewing the annual report. There are however concerns about boilerplate texts and overall readability of the reports. These concerns seem legitimate, since previous studies provided evidence of homogenization amongst extended reports (Bolk, 2018; Boven, 2018). Respondents are not convinced the extended report alone will bridge the expectation gap. Lastly, respondents are less convinced about its added value for the audited entities themselves.
21
Results nonprofessional investors. Interviews with nonprofessional investors helped to
gain insight into the sources they used when making an investment decision. Moreover, it provided insight into their perceptions about the auditor’s report and the audit profession in general.
Table 7
Descriptive statistics nonprofessional investors
- -/+ + Total Annual report 5 3 - 8 Auditor’s report 8 - - 8 Trust audit profession 5 2 1 8
- not useful/no added value/decreased; -/+ partially useful/partially added value/partially enhanced; + useful/added value/enhanced
Table 6 contains descriptive statistics of interviews with nonprofessional investors. In total, eight nonprofessional investors were interviewed.
Use annual report. The first question asked whether respondents involved annual
reports when making an investment decision. Five out of eight respondents did not involve annual reports in their investment decisions. Three respondents sometimes used annual reports. As one respondent stated:
,,I use them in some cases. Sometimes I have the opportunity to read annual reports by different information platforms I use. Generally, the analyses are conducted by others. The annual reports, yes, sometimes you use them, for example before investing into Shell or Unilever. But not for funds.”
Thus, this respondent incorporates information gathered from different platforms. This strategy is extensively used. Many respondents stressed they form their opinion based on analyses of “others”. Where others can be defined as fellow investors, information platforms like “Beursgorilla”, and/or financial newspapers.
Use auditor’s report. The interviews revealed a striking result that none of the respondents involved the auditor’s report in their investment decisions. Moreover, the respondents were not aware of the attributes of the extended report. Some respondents stated they did not use the auditor’s report as they do not understand it. Others adhere the assumption that listed companies simply have an unqualified audit opinion. It is however emphasized by some respondents that they do involve press statements about a qualified
22 audit opinion or a revoked unqualified opinion in their decision, without further investigating the matter.
Trust in the audit profession. One of the main purposes of the extended report was
to restore trust in the audit profession. However, five respondents stated their trust has decreased. As one respondent argued:
,,No, there have been too many scandals to say the audit profession is doing fine. So far, nothing has changed. I do not think these new standards will lead to any change.”
Two nonprofessional investors stated their trust is partially restored, one of them emphasized that (s)he considers medium-sized audit firms more reliable than Big 4 firms. This is contrary to results of DeAngelo (1981) that larger audit firms deliver higher audit quality. However, the above statement represents one nonprofessional investor. It is unclear whether this statement has broad support. Lastly, one respondent stated that his/her trust in the audit profession has increased.
Input investment decision. Respondents were asked whether, in their opinion,
auditors should report (more or less) about certain topics in their reports, enabling them to make better investment decisions. The replies received were divergent. Three respondents gave no input. They either argued the auditor’s report should not be extended, or it is no auditor duty to provide investors with information for their investment decisions. Three other respondents stated they would appreciate information on future prospects, management and technology. One of them, however, also stated that this might not be responsibility of the auditor. Lastly, one respondent argued (s)he would appreciate a clear statement on entities’ websites. As this respondent stated, too much information available declines its usefulness.
Responsibilities auditor. Lastly, respondents were asked regarding auditor
responsibilities. First, respondents were asked to name, responsibilities of the auditor, in their opinion. Answers varied:
,,I think this is a difficult question which I cannot answer.”
And
,,At least fairly present the accounts and verify that all accounts are treated right and that there are no incorrect financial statement. That’s why we have auditors.”
23 Auditors are however not responsible for the accounts. The responsibilities defined by the second respondent therefore indicate persistent existence of the reasonableness gap. Afterwards, respondents were asked whether a gap exists between the responsibilities they just mentioned, and responsibilities defined by law and legislation. Overall, most respondents indicated they do not exactly know what auditors are obliged to do by law. Either because they simply do not pay attention to this matter, or because they lack insight. As one respondent answered:
,,I do not pay attention to these responsibilities. Especially not regarding big auditors. One may rely they work compliant with the law.”
Added value extended report. None of the respondents used the auditor’s report for
their investment decisions, as a logical consequence they did not read the extended report. After explaining the attributes of the extended report, several respondents stated the information included is indeed useful. As one of the investors argued:
,,I did not read the extended report, but I think, with regard to portfolios and unexpected events, such information is valuable. Therefore, one should have a look at such reports before investing.”
On the follow-up question, now they knew what information is provided in the extended report, would they involve the extended report into their investment decisions, all replied negative. Thus, even with sufficient knowledge, the extended report seems to have no added value for nonprofessional investors.
24
V. DISCUSSION AND CONCLUSIONS
Following public debate, regulators and standard setters introduced changes to their standards for audit reports. These modifications required auditors of public-interest entities to report on materiality, audit scope, and key audit matters, resulting in the extended auditor’s report. Main objectives of this extended report were to enhance communication between auditors and intended users, and to increase intended users’ confidence in the audit profession. More specifically, the aim was to reduce the audit expectation gap (IFAC, ISA 701). By exploring whether these objectives have been achieved, this study provides insight to help standard setters to evaluate current standards, and to help auditors to evaluate content of their reports. The results revealed a series of observations, indicating preset objectives have not been achieved. More precisely, results suggest that time and effort spend drawing up the extended report are a waste of time. This is in line with studies from Lennox et al. (2018) and Gutierrez et al. (2018), who found no evidence of incremental informativeness of the UK’s extended report. Thus, our results suggest their findings are generalizable to Dutch nonprofessional investors. Our findings oppose to results of Christensen et al. (2014), that key audit matters do have impact on nonprofessional investors. Moreover, our results question the assumption made by Sutton et al. (2009), who stated that nonprofessional investors are extensive users of the auditor’s report. Complementary, this study finds support for concerns of Brazel et al. (2011) that uniformity, resulting from mimetic isomorphism, may result in standard boilerplate texts and therefore add little value for users. These findings are explored in greater detail below.
The extended report was first issued over financial statements regarding 2013. During the first four years of issuance, the report has become more extensive. Over the years, various audit firms initiated new elements into their reports, which were quickly absorbed by other audit firms. Moreover, wording and content became increasingly similar during the years. These observations are a clear sign of mimetic isomorphism. Due to uncertainty about the content and format of the extended report, audit firms seek for examples by other firms, leading to increasingly similar wording and content, eventually resulting in boilerplate texts and therefore little added value for users (Brazel et al., 2011; de Freitas and de Aquino Guimarães, 2007).
Although, the NBA advisory board member and the majority of the audit partners are optimistic and positive about the extended report, interviews with nonprofessional investors revealed striking results. It appeared that none of the interviewed investors involved the auditor’s report when making investment decisions. Therefore, it seems that the objective of standard setters to enhance communication between auditors and nonprofessional investors has not been achieved. The extended report did not enhance communication between auditors and nonprofessional investors, simply because investors do not consider the report in their decisions. Likewise, the extended report did not help
25 align expected and actual auditor responsibilities. Concerns of Sirois et al. (2014) that intended users place too much emphasis on key audit matters, thereby reducing their attention on other information provided, therefore seem unnecessary. Another main purposes of the extended report was to increase intended users’ confidence in the audit profession. Since investors did not read the report, the report itself did not increase, or even influence, their confidence. Rather, as results revealed, a considerable number of respondents have less confidence in the audit profession.
Our findings oppose results of Christensen et al. (2014), who found that nonprofessional investors’ decisions are influenced by the extended report, in particular by key audit matters. However, their findings resulted from an experimental setting in which they compared investors’ judgment based on information provided. Consequently, under this experimental setting investors actually did involve the auditor’s report. Thus, results of Christensen et al. (2014) indicate, when used, investors value the extended report higher than the old, standard, report. This result is partly endorsed in our study, since nonprofessional investors appraise information included in the extended report to be of added value. Despite this, respondents emphasized to still not consider the extended report as input for investment decisions. In their study, Christensen et al. (2014) assumed investors actually involve the auditor’s report when making investment decisions. As our study revealed, they do not, indicating that assumptions may not be valid in real world conditions.
Thus, although the NBA advisory board member and audit partners regard the extended report as added value for investors, investors themselves do not. Consequently, the extended report did not reduce the expectation gap. As results indicated, investors are not fully aware of auditor responsibilities. Moreover, auditors perceived investors to have unreasonable expectations, indicating persistent existence of the reasonableness gap. This finding is consistent with conclusions of McEnroe and Martens (2001) and Sidani (2007), who found that the existing gap can be classified into the reasonableness gap.
Since investors do not read the auditor’s report, it is evident that communicating auditor responsibilities through this medium is not effective. Suggestions of Schelluch and Gay (2006) and Siddiqui (2009) to reduce the gap by language alteration therefore seem insufficient. It however remains evident, as suggested by prior research, to educate nonprofessional investors about auditor responsibilities (Sidani, 2007; Fadzly and Ahmand, 2004; McEnroe and Martens, 2001). Some audit partners suggested to educate society by oral explanation or by use of different media channels. Changes are urgently needed, it is therefore necessary to investigate how responsibilities can clearly and efficiently be communicated.
The audit expectation gap exists of both the unreasonableness gap and the performance gap. Regarding the performance gap, a distinction can be made between
26 insufficient performance and insufficient standards (Dixon et al., 2006; Porter, 1993). The extended report forced auditors to be more transparent in their reporting. As all audit partners stated, the new standards did not affect their work performed and solely required more detailed reporting. Thus, auditor responsibilities in itself did not change, the extended report therefore helped align existing auditor responsibilities with responsibilities defined by law and regulations. Consequently, the extended report helped reduce the insufficient standards gap. However, according to investors’ opinions, the new standards did not change the audit profession. Therefore, preset objectives have not been achieved, and thus the audit expectation gap has not been reduced.
Investors’ reduced confidence in the audit profession may be a sign of compromised organizational legitimacy, which can cause serious problems for organizational survival (Rhunke and Schmidt, 2014; Power, 2003). Future studies should investigate to what extent organizational legitimacy is compromised and how this can be restored.
In accordance with a study performed by Sutton et al. (2009), we focused on nonprofessional investors, since they have limited access to corporate information. It was assumed that nonprofessional investors make their investment decisions less informed than professional investors, consequently, nonprofessional investors were assumed to be extensive users of the auditor’s report (Sutton et al., 2009). Our results however revealed the contrary. More precisely, nonprofessional investors stated not to involve the auditor’s report when making investment decisions. Instead, our respondents argued they base their investment decisions on analyses of “others”, for example trusted fellow investors, information platforms like “Beursgorilla”, and/or financial newspapers.
Since objectives are not met, it is questioned whether time and effort spend drawing up the extended report are worth it. However, as the NBA member stated, information revealed in the extended report might be relevant for stakeholders other than investors. In order to reduce the expectation gap, it is necessary to investigate who actually reads the auditor’s report, in other words, to identify intended users. As emphasized by many audit partners, it is not possible to reduce the gap without sufficient insight into the information requirements of users. First step in closing the gap, will thus be to identify auditor reports users. It is evident to identify whether the “others”, as indicated by our respondents, indeed involve the auditor’s report in their analyses. After identifying the users, their information requirements and ways to fulfill these needs should be investigated.
This research is subject to several limitations. Firstly, inherent to interview-based studies, there is a risk of dishonest responses (Svanström, 2016). Nature of the questions may reduce this risk, since they are aimed at gaining insight into the respondents’ perceptions and opinions and not at evaluating knowledge or behavior. Moreover, during the interviews, it was emphasized wrong answers did not exists. Furthermore, our focus on nonprofessional investors represents a restriction, since findings may not be generalizable
27 to other, for example, institutional investors. Additionally, this research might be subject to researcher bias. To enlarge reliability, transcripts were independently coded by two researchers. Moreover, several transcripts were coded twice, and data, concepts, and categories were constantly questioned and compared. Lastly, the sample used is relative small, results therefore might not be generalizable to all nonprofessional investors. It is therefore necessary to test generalizability of these results amongst a larger sample. Future research could, for example, investigate the use of the extended report through a large-scale survey amongst all VEB members.
In summary, our results revealed that nonprofessional investors do not involve the auditor’s report when making an investment decision. Therefore, objectives of standard setters to enhance auditor communication have not been met. More specifically, the presence of mimetic isomorphism may be counterproductive for enhancing communication. Consequently, the extended report did not help reduce the expectation gap. This study contributes existing literature by providing evidence of the added value of the extended report in The Netherlands. Moreover, our results provide insight to standard setters whether their standards are effective or not. As our results indicate, the current audit standards have not succeeded to fulfill preset objectives. Standard setters should therefore evaluate how standards can be better targeted. In order to close the expectation gap, future research should investigate who actually uses the auditor’s reports. In other words, intended users should be identified. When identified, it should be examined whether these users appraise the extended report as added value. Moreover, it is necessary to examine how auditor responsibilities can adequately be communicated to society.
28
VI. BIBLIOGRAPHY
1. Allee, K., and Yohn, T. (2009). The Demand for Financial Statements in an
Unregulated Environment: An Examination of the Production and use of Financial Statements by Privately Held Small Businesses. The Accounting Review. 84(1), 1-25.
2. Arnold, V., Bedard, J.C. and Phillips, J. and Sutton, S.G. (2010). Where do
Investors Prefer to Find Nonfinancial Information? Journal of Accountancy.
available at:
https://www.journalofaccountancy.com/news/2010/aug/20102682.html
3. Asare, S.K. and Wright, A.M. (2012). Investors’, Auditors’, and Lenders’
Understanding of the Message Conveyed by the Standard Audit Report on the Financial Statements. Accounting Horizons. 26(2), 193-217.
4. Backof, A.G., Bowlin, K. and Goodson, B.M. (2014). The impact of proposed
changes to the content of the audit report on jurors’ assessments of auditor
negligence. Unpublished working paper, available at
https://ssrn.com/abstract=2446057
5. Beattie, V., Fearnley, S., and Hines, T. (2013). Perceptions of post-SOX UK
regulatory environment. Accounting and business research. 43(1), 56-81.
6. Bédard, J., Coram, P., Espahbodi, R., and Mock, T.J. (2016). Does Recent
Academic Research Support Changes to Audit Reporting Standards? Accounting Horizons. 30(2), 255-275.
7. Bedard, J.C., Sutton, S.G., Arnold, V. and Phillips, J.R. (2012). Another Piece of
the
’Expecations Gap’’: What Do Investors Know About Auditor Involvement with Information in the Annual Report? Current issues in auditing. 6(1), A17-A30.
8. Best, P.J., Buckby, S., and Tan, C. (2001). Evidence of the audit expectation gap in
Singapore. Managerial Auditing Journal. 16(3), 134-144.
9. Bolk, M. (2018). The evolution of the long-form auditor’s report: The
homogenization of the Key Audit Matters and the effect of auditor change, audit quality & financial distress. Master thesis available at
http://irs.ub.rug.nl/dbi/5a941ed92aabb
10. Boven, B.F. (2018). The extended audit opinion: creating useful insight or just
ticking the box? Master thesis available at http://irs.ub.rug.nl/dbi/5aa10ba4a3a62
11. Bosse, D.A. and Phillips, R.A. (2016). Agency Theory and Bounded Self-Interest. Academy of Management Review. 41(2), 276-297.
12. Brasel, K., Doxey, M.M., Grenier, J.H., and Refett, A. (2014). Risk Disclosure
Preceding Negative Outcomes: The Effects of Reporting Critical Audit Matters on Judgments of Auditor Liability. The Accounting Review. 91(5), 1345-1362.
13. Brazel, J.F., Caster, P., Davis, S., Glover, S.M., Janvrin, D.J., Kozloski, T.M., and
