Disclosure of Fair Value Measurement in Goodwill Impairment Test and Audit Fees

50 Pages Posted: 18 Apr 2018 Last revised: 2 Jul 2019

See all articles by Vincent Chen

Vincent Chen

National Chengchi University (NCCU) - Department of Accounting

Edmund C. Keung

National University of Singapore (NUS), Business School

I-Min Lin

National Chengchi University (NCCU)

Date Written: June 30, 2019

Abstract

Recent increases in the occurrence and magnitude of goodwill impairment charges highlight the increasing importance of the role of the auditor in goodwill accounting. This study examines the association between disclosures about the fair value measurement of goodwill and audit fees. We find that goodwill-related disclosures are positively related to audit fees, consistent with the idea that auditors increase their audit efforts to mitigate potential reputational and litigation losses (“audit risk effect”). Additionally, our results indicate that the information asymmetry and investor scrutiny moderate the association between goodwill-related disclosures and audit fees. One possible explanation is that auditors take goodwill-related disclosures as a signal of truthful goodwill accounting and this “signaling effect” partially offsets the “audit risk effect” of goodwill-related disclosures when information asymmetry or investor scrutiny is perceived as high.

Keywords: Goodwill, Fair Value, Fair Value Disclosure, Audit Fee, Audit Risk, Signaling.

JEL Classification: M40, M41, and M42

Suggested Citation

Chen, Vincent and Keung, Edmund C. and Lin, I-Min, Disclosure of Fair Value Measurement in Goodwill Impairment Test and Audit Fees (June 30, 2019). Available at SSRN: https://ssrn.com/abstract=3150146 or http://dx.doi.org/10.2139/ssrn.3150146

Vincent Chen

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan, Taipei
Taiwan

Edmund C. Keung

National University of Singapore (NUS), Business School ( email )

1 Business Link
Singapore, 117592
Singapore

I-Min Lin (Contact Author)

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

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