Expanded audit reports and audit committee reports have led to better audits in the United Kingdom, according to emerging academic research, perhaps because expanded reporting has given auditors more leverage over financial statement assertions.
As U.K. regulators began requiring more insightful audit reports and audit committee reports, U.K. companies began reporting fewer abnormal accruals and showed less tendency to just meet or beat analyst forecasts, the study shows, without significant increases in audit costs or time taken to issue audit reports. “Taken together, this study documents that the new auditor and audit committee reporting requirements are associated with a significant improvement in audit quality without detecting a significant incremental cost,” the study concludes.
