Voluntary Attestation in the Asset Management Industry: Its Influence on Users' Perceptions and Investment Decisions

Abstract

This study provides evidence on the influence of voluntary attestation outside of the financial statement audit setting. Information preparers can voluntarily employ an independent third party to attest to the reliability of information other than financial statement information. An issue of interest is whether voluntary attestation of information reliability influences users' perceptions and use of this information. The AICPA's Special Committee on Assurance Services has recently drawn attention to the potential role for CPAs in establishing the reliability of information other than financial statement information. Accounting firms are in a unique position to provide voluntary attestation services. However, unlike the market for financial statement auditing, many attestation services can also be performed by professionals other than CPAs. Thus, a secondary issue of import is whether the type of attester influences users' perceptions and use of attested information. The development of the Performance Presentation Standards (PPS) by the Association for Investment Management and Research provides a setting for examining these issues. PPS are voluntary reporting rules for investment managers to use in reporting historical performance results. Pension fund sponsors place money with investment managers, who select and monitor investments for the pension fund. Fund sponsors select investment managers based, in part, on the investment managers' asserted performance results. This institutional setting comprises information asymmetry between the investment manager and the fund sponsor, with an incentive by the investment manager to present performance results in a favorable light. PPS were developed to mitigate this information asymmetry. Adherence to PPS is voluntary, and attestation of PPS compliance is not required. Potential attesters of PPS compliance include accounting firms and financial services firms. We conduct an experiment in which pension fund sponsors are provided with case materials and asked whether they would recommend placing pension funds with any of a set of investment managers. We hypothesize that attestation enhances the perceived credibility of investment managers' asserted performance results, and influences fund sponsors' investment decisions. We further hypothesize that the type of attestation firm (Big 6 CPA firm; small, local CPA firm; international financial services firm; small, local financial services firm) influences fund sponsors' perceptions of information credibility and their subsequent investment decisions. Our results suggest the following. Pension fund sponsors prefer that investment managers present performance results that have been asserted to have been prepared in accordance with AIMR PPS. Further, attestation of this assertion influences fund sponsors' perceptions of information credibility. Specifically, fund sponsors perceive that attested information is more credible than information that has not been attested. We also find that when performance results have been attested by a CPA firm, fund sponsors perceive that information credibility is higher when the attestation is performed by a Big Six firm, rather than by a non-Big Six firm. Surprisingly, our experimental evidence suggests that perceived credibility of performance results is not an important determinant of a fund sponsor's investment decision.