Do industry specialist auditors enforce more conservative recognition of long-lived asset impairments?
Abstract
[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT AUTHOR'S REQUEST.] Prior research suggests that managers exhibit strong incentives to hide losses and use unverifiable discretion opportunistically. In this study, I focus on impairments of long-lived assets, which require implementation of complex accounting standards and involve substantial discretion as to the timing and magnitude of reported losses. Specifically, I examine whether industry specialist auditors act as a monitoring mechanism by enforcing more conservative recognition of impairments. Using a sample of firm-year observations between 2003 and 2010, empirical results reveal that client firms engaging industry specialist auditors record more frequent, larger, and timelier asset impairments relative to client firms engaging auditors with less specialization. Moreover, I find that the positive association between industry specialists and asset impairments is stronger during the economic crisis period when auditors face greater risks (e.g., heightened litigation risk). Specialist auditors are also more likely to enforce timely impairments during the crisis through large, one-time write-offs. Overall, this study provides evidence that auditor expertise plays an important monitoring role in the enforcement of complex accounting standards.
Degree
Ph. D.
Thesis Department
Rights
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