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

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, however, is unknown. Exploiting the exogenous shock of the recent changes to auditor and audit committee reports in the United Kingdom, I find that information asymmetry significantly decreased following the implementation of the new disclosure regime. Furthermore, I find that reductions in information asymmetry are greater for firms with weaker information environments, suggesting that the new disclosure requirements particularly benefit investors in these firms. Additionally, I find some evidence that companies employing auditors that tend to provide more (less) detailed audit reports under the new regime experience more (less) significant reductions in information asymmetry. Overall, it appears that additional required disclosures from audit committees and auditors provide new and useful information to investors and serve to reduce information asymmetry. The results of this study provide important information to regulators, auditors, audit committees, public companies, and capital markets worldwide.