La ricerca esaminerà aziende statunitensi ed europee quotate e verificherà l'effettiva capacità dei revisori esterni di controllare la bontà e l'attendibilità delle valutazioni al fair value riferite all'avviamento.
PI: Giulio Greco
Dipartimento: Dipartimento di Economia e Management
Data inizio: 23/09/2015
Data fine: 23/09/2018
Durata: 36 mesi
Costo del progetto:100.436 €
Finanziamento ministeriale: 100.436 €
Abstract
This research project aims at investigating whether audit quality affects the reliability of the goodwill write-off, under the US GAAP and the IAS/IFRS accounting standards. In both sets of standards, the recognition of the goodwill write-offs is based on the management fair value estimates, derived from business plans and forecasts about the firm future ability to generate cash flows. Through the impairment of goodwill, both the FASB and the IASB standard setters expect that managers disclose to the outside their private information about the firm future profitability perspectives. Yet, the procedure is inherently subjective and, for this reason, the goodwill write-off has been often defined as a hardly verifiable estimate. A reliable impairment of the goodwill is crucial to avoid inflated assets value, to improve the investors’ and the lenders’ forecasting capability about the firm future performance and their resources allocation decisions.
External audit is critical to ensure that the write-offs are recognized in a timely manner and in adequate amounts. The managers manipulate write-offs, reporting untimely, excessive or insufficient write-offs, for earnings management reasons, to keep inflated asset values in the balance sheet and to avoid scrutiny on prior investment decisions by investors and lenders (e.g. M&A choices). This manipulation harms the resources allocation within the firm and at a market level, as unreliable asset values and managerial forecast compromise the investors' and the lenders' decision-making activity.
External audit is thus fundamental to warrant that the write-offs are based on sound, coherent and reasonable accounting.
This research investigates whether higher audit quality is associated to more reliable (less manipulated) write-offs. We explore several dimensions of audit quality (auditor size, tenure, expertise, audit fees and non-audit consulting fees) and, basing on agency theory, we develop a set of hypotheses linking audit quality proxies to the goodwill write-offs reliability. The investigation will be conducted on all the companies with data available on the Audit Analytics database, including firms adopting both US GAAP and IAS/IFRS (about 40.000 individual firms). The hypotheses will be tested through multivariate regression analysis.
To the best of our knowledge, there is no prior research linking external audit quality and the goodwill write-off. This project can contribute to the academic literature on financial accounting and on audit quality. This project can also have significant practical implications. If audit quality has no impact on the write-offs reliability, then the use of fair values based on inherently subjective, hardly verifiable and auditable estimates is likely to compromise the financial reporting’s role as a management control system. If there is any impact, our research may suggest which features of the external audit can improve the write-offs reliability (e.g. auditor size, independence, expertise)