Are Auditor and Audit Committee Report Changes Useful to Investors? Evidence from the United Kingdom

Abstract

Recently, U.S. and international regulators have proposed significant changes to auditor and audit committee reporting with the stated intention of delivering more useful information to stakeholders. Whether new disclosure requirements achieve this intended benefit is unknown. We exploit the exogenous shock of the recent changes to auditor and audit committee reports in the United Kingdom and use abnormal trading volume to test the usefulness of these new reports to investors. We find that abnormal trading volume significantly increased following the implementation of the new disclosure regime, and that abnormal trading volume increased more for companies with weaker information environments. Additionally, we find evidence that companies employing auditors that tend to provide more (less) detailed audit reports experience more (less) abnormal trading volume. Overall, it appears that additional required disclosures from audit committees and auditors provide useful information to investors.