Assessing the impact of the new auditor’s report

Changes to the auditor’s report have been proposed and issued internationally to provide more relevant information to users and enhance the perceived value of financial statement audits. This paper aims to investigate the impact of audit reporting changes on audit quality and audit fees in the New Zealand context.

The authors examined audit quality measured by absolute abnormal accruals and audit fees for New Zealand listed companies.

The evidence suggests the enhanced audit reports were followed by an improvement in audit quality as proxied by a reduction in absolute abnormal accruals upon the adoption of the new audit reporting requirements. There was also a significant increase in audit fees.

Although the new auditor reporting requirements are associated with improvements in audit quality, such benefit does not come without cost.

The study provides evidence about the impact of this recent substantial reform to auditing.