دانلود رایگان مقاله انگلیسی تقاضای وام دهندگان خصوصی برای حسابرسی - الزویر 2017

Abstract

We study the demand for audit in private lending agreements by examining whether the borrower‟s auditor is contractually required to assure lenders of borrowers‟ compliance with financial covenants. Auditors are required under general purpose financial reporting to review covenant compliance. However, by informing lenders directly that they have no knowledge of any default, auditors may increase their litigation risk. Consistent with predictions from contracting theory, we find that the existence of auditor covenant compliance assurance clauses is significantly associated with more complex contractual adjustments to GAAP net income, the extent of reliance on accounting information in the contract, the level of intangibility of the borrower‟s assets, the number of lenders and loan maturity. As well as reporting novel descriptive data on the extent of auditors‟ role in reporting directly to private lenders, we provide evidence on ways in which the audit market may enhance efficient contracting.

6. Conclusion

We investigate the demand for additional auditor assurance in private lending agreements. Our measure of demand is whether auditors are contractually required to report to lenders on borrowers‟ compliance with the financial covenants in the lending agreement. The clauses we examine have been identified in isolated cases in prior research (Watts, 1977; Watts and Zimmerman, 1986), but to date, they have not been subjected to systematic empirical investigation. Auditors are required to check borrowers‟ compliance under the GAAP regime regardless of the contractual provisions we study. Auditing standards for covenant compliance assurance state that auditors are only to offer negative assurance to lenders and do not increase their work as a result of such obligations. On the other hand, by requiring reports be addressed to lenders, covenant compliance clauses are likely to increase auditors‟ litigation risk from lenders. Furthermore, agency theory and the financial contracting literature suggest that lenders‟ demand for covenant compliance assurance where auditors report directly to them should vary in a predictable way. We develop and test hypotheses relating to factors likely to be associated with auditor covenant compliance assurance clauses. Our results indicate that auditors play an important role in reducing information asymmetries and enhancing contracting efficiency. Consistent with conjectures in prior research (Li, 2010), more complex adjustments to GAAP measurement rules are associated with increased requirements for monitoring by auditors. While we leave the investigation of the specific costs of extra monitoring to future research, it is possible that the additional assurance required for tailored measurement rules may help explain why debt contracts contain comparatively few (and relatively simple) financial covenants (Christensen et al., 2016).