Investors' and Analysts' Reactions to Other Information Disclosure on the Auditor's Report

Abstract

New and revised Canadian Auditing Standards for audits of companies with fiscal periods ending on or after December 15, 2018 came into effect in April 2017. This paper examines the economic effects of one of the updates: the new auditor reporting requirement to disclose the auditor’s responsibilities over other information. We investigate the relationship between the existence of the auditor’s commentary about the MD&A within the other information paragraph on the auditor’s report and the reactions of users of the financial statements, namely investors and analysts, to the MD&A. We find that both investors and analysts do not respond to the auditor’s commentary about the MD&A within the other information paragraph present on the auditor’s report. Our result indicates that although the disclosure may not be providing additional information value to users of the financial statements as the standard setters intended, it is also not creating an increase in the audit expectation gap.