Fair value and audit fees

Accounting and Finance

Research output: Contribution to Journal/Magazine › Journal article › peer-review

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Fair value and audit fees. / Goncharov, Igor; Riedl, Edward J.; Sellhorn, Thorsten.
In: Review of Accounting Studies, Vol. 19, No. 1, 03.2014, p. 210-241.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Goncharov, I, Riedl, EJ & Sellhorn, T 2014, 'Fair value and audit fees', Review of Accounting Studies, vol. 19, no. 1, pp. 210-241. https://doi.org/10.1007/s11142-013-9248-5

APA

Goncharov, I., Riedl, E. J., & Sellhorn, T. (2014). Fair value and audit fees. Review of Accounting Studies, 19(1), 210-241. https://doi.org/10.1007/s11142-013-9248-5

Vancouver

Goncharov I, Riedl EJ, Sellhorn T. Fair value and audit fees. Review of Accounting Studies. 2014 Mar;19(1):210-241. Epub 2013 Aug 29. doi: 10.1007/s11142-013-9248-5

Author

Goncharov, Igor ; Riedl, Edward J. ; Sellhorn, Thorsten. / Fair value and audit fees. In: Review of Accounting Studies. 2014 ; Vol. 19, No. 1. pp. 210-241.

Bibtex

@article{c5dda715433b4bec890fca7f99469e36,

title = "Fair value and audit fees",

abstract = "This paper investigates the effect of fair value reporting and its attributes on audit fees. We use as our primary sample the European real estate industry around mandatory IFRS adoption (under which reporting of property fair values becomes compulsory), due to its unique operating and reporting characteristics. We document lower audit fees for firms reporting property assets at fair value relative to those employing depreciated cost—a difference that appears driven, in part, by impairment tests that occur only under depreciated cost. We further find that audit fees are decreasing in firms{\textquoteright} exposure to fair value and increasing both in the complexity of the fair value estimation and for recognition (versus only disclosure) of fair values. We corroborate our findings in two alternative settings: contrasting UK and US real estate firms and using UK investment trusts. Overall, the results suggest that fair values can lead to lower monitoring costs; however, any reductions in audit fees will vary with salient characteristics of the fair value reporting, including the difficulty to measure and the treatment within the financial statements.",

keywords = "Fair value, Audit fees, Audit pricing, Real estate industry",

author = "Igor Goncharov and Riedl, {Edward J.} and Thorsten Sellhorn",

year = "2014",

month = mar,

doi = "10.1007/s11142-013-9248-5",

language = "English",

volume = "19",

pages = "210--241",

journal = "Review of Accounting Studies",

issn = "1380-6653",

publisher = "Springer New York",

number = "1",

}

RIS

TY - JOUR

T1 - Fair value and audit fees

AU - Goncharov, Igor

AU - Riedl, Edward J.

AU - Sellhorn, Thorsten

PY - 2014/3

Y1 - 2014/3

N2 - This paper investigates the effect of fair value reporting and its attributes on audit fees. We use as our primary sample the European real estate industry around mandatory IFRS adoption (under which reporting of property fair values becomes compulsory), due to its unique operating and reporting characteristics. We document lower audit fees for firms reporting property assets at fair value relative to those employing depreciated cost—a difference that appears driven, in part, by impairment tests that occur only under depreciated cost. We further find that audit fees are decreasing in firms’ exposure to fair value and increasing both in the complexity of the fair value estimation and for recognition (versus only disclosure) of fair values. We corroborate our findings in two alternative settings: contrasting UK and US real estate firms and using UK investment trusts. Overall, the results suggest that fair values can lead to lower monitoring costs; however, any reductions in audit fees will vary with salient characteristics of the fair value reporting, including the difficulty to measure and the treatment within the financial statements.

AB - This paper investigates the effect of fair value reporting and its attributes on audit fees. We use as our primary sample the European real estate industry around mandatory IFRS adoption (under which reporting of property fair values becomes compulsory), due to its unique operating and reporting characteristics. We document lower audit fees for firms reporting property assets at fair value relative to those employing depreciated cost—a difference that appears driven, in part, by impairment tests that occur only under depreciated cost. We further find that audit fees are decreasing in firms’ exposure to fair value and increasing both in the complexity of the fair value estimation and for recognition (versus only disclosure) of fair values. We corroborate our findings in two alternative settings: contrasting UK and US real estate firms and using UK investment trusts. Overall, the results suggest that fair values can lead to lower monitoring costs; however, any reductions in audit fees will vary with salient characteristics of the fair value reporting, including the difficulty to measure and the treatment within the financial statements.

KW - Fair value

KW - Audit fees

KW - Audit pricing

KW - Real estate industry

U2 - 10.1007/s11142-013-9248-5

DO - 10.1007/s11142-013-9248-5

M3 - Journal article

VL - 19

SP - 210

EP - 241

JO - Review of Accounting Studies

JF - Review of Accounting Studies

SN - 1380-6653

IS - 1

ER -

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