Accounting Seminar(2018-21)

Topic: The Effect of Increased Audit Disclosure on Managerial Decision Making: Evidence from Disclosing Critical Audit Matters

Speaker: Elaine Ying Wang，Isenberg School of Management, University of Massachusetts Amherst

Time: Wednesday, Nov.28^th, 10:00-11:30a.m

Place: Room K02, Guanghua Building 2

Abstract:

The Public Company Accounting Oversight Board (PCAOB) recently issued a standard that requires auditors to provide information on “critical audit matters” (CAMs) identified during the financial statement audit. While regulators intend to add value to audit reports by asking auditors to disclose more information, it is unknown whether and how increased auditor disclosure will alter managers’ decision making. We conduct three experiments in two different decision settings (whether to use derivatives or issue a new loan program) and test how a CAM disclosure requirement changes managers’ decisions based on the risk implications of the decision. In our main experiment with derivatives, we find that a CAM disclosure increases managers’ willingness to speculate (a risk-increasing transaction), but decreases managers’ willingness to hedge (a risk-decreasing transaction). Consistently, in supplemental experiments with auto loans, we find that CAM disclosures make managers more likely to issue risk-increasing loans, but less likely to issue risk-decreasing loans. Taken together, our results suggest that CAM disclosures elicit strategic managerial responses in such a way that may encourage risk-increasing activities and reduce risk-decreasing activities.

Introduction:

Dr. Elaine Ying Wang joined University of Massachusetts Amherst in 2011. She received her B.A. in Accounting from Renmin University of China and Ph.D. in Accounting from Nanyang Technological University. She has published inThe Accounting Review, Journal of Accounting Researchand so on. She has taught Intermediate Accounting and International Accounting for undergraduate students, Behavioral Research in Accounting for PhD students. Her main research interests are in individual judgment and decision making in accounting and auditing contexts, linguistic features of financial reporting, and Real effects of financial reporting.

//www.isenberg.umass.edu/people/elaine-wang

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