Gopal Krishnan is a Trustee Professor of Accountancy at Bentley University. Detailed profile can be found here.
Bentley University
August 06, 2024
Do Voluntary Peer Disclosures Impact Audit Fees?
There is a paucity of research on whether and how peer firm disclosure helps auditors in their work. We examine two research questions. First, whether there is an association between the peer disclosure of earnings forecasts and audit fees. Second, whether peer disclosure of management earnings forecasts moderates the relation between a focal firm’s earnings forecasts and audit fees.We find that peer disclosure of management earnings forecasts is negatively related to audit fees,suggesting that peer disclosure is useful to auditors in the financial reporting verification process(Ball et al. 2012). Next, peer disclosure of management earnings forecasts mitigates the positiverelationship between audit fees and a focal firm’s management earnings forecasts. Thus, peerdisclosure of management earnings forecasts attenuates the optimistic bias associated withearnings forecasts and aids auditors in evaluating clients’ earnings forecasts better, resulting inlower audit risk. The results of additional analyses suggest that the effect of peer disclosure is stronger when the focal firm and peers have a common auditor, and peer disclosure enriches theinformation environment proxied by lower analyst forecast dispersion and higher earnings quality.Keywords: Audit fees; peer disclosure; management earnings forecasts; information spillover.
