Evaluating Combined Assurance as a New Credibility Enhancement Technique

Shan Zhou · Roger Simnett · Hien Hoang

69 citations0/0 files storedAuditing A Journal of Practice & Theory

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Auditing, Earnings Management, Governance Corporate Social Responsibility Reporting Financial Reporting and XBRL

Abstract

One of the challenges associated with emerging forms of external reporting is finding efficient and effective means to enhance the credibility of these reports (IAASB 2016). This study examines a novel credibility-enhancing mechanism, combined assurance (CA), where the credibility-enhancing processes of the internal auditor, the external auditor, and the effectiveness of risk management and internal controls and processes are publicly reported by the company (audit committee). We identify the most appropriate setting currently available (Integrated Reporting in South Africa) to examine whether there are benefits associated with communicating the details of CA within companies’ integrated reports. We find that communicating the details of CA is beneficial in reducing both analysts’ forecast errors and dispersion, and also in reducing the bid–ask spread for companies where the information environment is weaker. The implications of these findings for regulators, standard-setters, assurance providers and users of extended external reports are discussed.

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References

1987A Simple Model of Capital Market Equilibrium with Incomplete Information 2010Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting 1998The Effect of Audit Quality on Earnings Management*2014A review of archival auditing research 2001Essays on disclosure 2000The Economic Consequences of Increased Disclosure 2008Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences 1999The Economic Consequences of Increased Disclosure

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