UT research provides insight into audit reporting change

Sydney Criswell

Researchers at UT studied the effects of a proposed change in audit reporting that could require auditors to flag potential areas on concern in companies financial reports. 

The Public Company Accounting Oversight Board, a national regulatory agency, is introducing a new policy which would add critical audit matters to all audit reports as part of the first major change in requirements in over 80 years.

While the proposed change in reporting standards for auditors’ worry some experts, new research from the McCombs School of Business finds the changes could provide legal protection for auditors.

“Most companies that are publicly traded are obligated to release their financials publicly and auditors are the third party that comes in and verifies everything,” said Phoebe Lin, finance and math senior.  “It is these financials that creditors and investors depend on. [Auditors] make the financials verifiable and they make the financials reliable.”

This new section is intended to highlight issues that auditors find complex and subjective in an effort to increase transparency.

The series of studies, conducted by accounting professor Steven Kachelmeier, assistant professor of accounting Jaime Schmidt and Kristen Valentine, an accounting doctoral student, found that the inclusion of the CAMs had different effects on the different groups that use the audit report. 

The overall level of confidence in the financials is unchanged, the group concluded in an article published in the Social Science Research Network.  

The groups they studied including attorneys, MBA students and financial analysts tended to view CAMs as flags to pay attention to.

Business honors freshman David McCarty is in favor of the addition of the CAMs.

“I think reading something like that just draws awareness to something that [the auditor] is having issues with,” McCarty said. “I think you could pretty easily get lost in the mountain of paperwork that those audits could be, so, yeah it’s definitely a good call.”

The new study is part of a current conversation taking place in the business world.

Biology senior Alejandro Santillana said UT’s role as a research University attracts new students. 

“When I chose to come to this university, the research was a big part,” Santillana said.