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Cited by 8Auditing, Earnings Management, GovernanceCorporate Governance and Financial ManagementAccounting Theory and Financial Reporting

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Do Firms Respond to Auditors’ Red Flags? Evidence from Goodwill Impairment Key Audit Matter Disclosures

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Andreicovici, Ionela, Jeny, Anne, Lui, Daphne·2025·The Accounting Review
DOI 10.2308/tar-2020-0437
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Abstract

We investigate the link between the expanded audit report and firms’ financial disclosure decisions, focusing on auditors’ mentions of goodwill impairment as a key audit matter (KAM). Drawing from a sample of the United Kingdom Premium Listed companies with goodwill on their balance sheets during 2014–2019, we identify instances where goodwill impairment is flagged as a KAM and contrast firms’ disclosure levels on goodwill impairment using textual measures constructed from information in their annual reports. We find that firm disclosure on goodwill impairment increases (decreases) when auditors start (stop) mentioning goodwill impairment as a KAM. The increase in disclosure is more pronounced in the presence of stronger external information demand and better internal governance. Finally, firms are more likely to impair goodwill in the period following auditors’ mention of goodwill impairment as a KAM. Overall, this paper establishes the role of the expanded audit report for firm disclosure.

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Metadata

Authors
Andreicovici, I., Jeny, A., & Lui, D.
Affiliations
  • IE University (ES)
  • Institut d'Economie Scientifique Et de Gestion (FR)
  • École Supérieure des Sciences Économiques et Commerciales (FR)
ORCID
Venue
The Accounting Review
Publisher
American Accounting Association
Published
2025-10-17
Volume
100
Issue
6
Pages
1-27
ISSN
  • 0001-4826 (ISSN-L)
  • 1558-7967
DOI
10.2308/tar-2020-0437
OpenAlex
W4413966799
Cited by
8
References
1
Citations by year
2026: 5 · 2025: 3
FWCI
20.88
Type
journal article
Language
en
Open access
Locations
The Accounting Review (publishedVersion)
Topics
  • Social Sciences › Business, Management and Accounting › Accounting › Auditing, Earnings Management, Governance
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Corporate Governance and Financial Management
  • Social Sciences › Business, Management and Accounting › Accounting › Accounting Theory and Financial Reporting
Keywords
key audit matters, goodwill impairment, expanded audit reports, financial disclosure, annual report disclosure, information needs, corporate governance, UK listed companies

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