Do Audit Findings Have Information Value? Evidence from Insider Trading in the Era of Expanded Auditor’s Report in the UK

• In Event: Auditing

Abstract

This study assesses the information value of auditors’ findings for capital markets participants. Specifically, we aim to determine whether corporate insiders in the United Kingdom (UK) trade based on auditors’ findings included in the expanded auditor’s report. The UK setting represents a unique opportunity to shed light on this matter for two reasons. First, in June of 2013 the Financial Reporting Council (FRC) in the UK issued an International Standard on Auditing (ISA) 700 (UK and Ireland) (FRC, 2013). This standard mandates the disclosure of information specific to a company’s audit process and financial reporting risk that was not publicly available before for companies with fiscal years beginning on or after October 1, 2012. Second, the UK has a blackout period (or close period) preceding preliminary earnings announcements for all companies listed on the London Stock Exchange (LSE).

Authors

• Elizabeth Gutierrez, Universidad de Chile

• Adriana Korczak, University of Bristol

• Joseph H Schroeder, Indiana University - Bloomington

• Maria Ivanova Vulcheva, Florida International University