Audit Quality and Banks’ Assessment of Disclosed Accounting Information

Posted: 22 Apr 2013

See all articles by Ling Chu

Ling Chu

Wilfrid Laurier University

Robert Mathieu

Wilfrid Laurier University

Chima Mbagwu

Wilfrid Laurier University

Date Written: April 22, 2013

Abstract

The objective of this paper is to investigate whether banks view the information on the off-balance sheet liabilities (specifically, operating leases) disclosed in the notes to the financial statements as more reliable when it is audited by brand name auditors (i.e., a Big 4 audit firm). To the extent that banks assess a higher likelihood that the financial statements could have material misstatements if it is not audited by a Big 4 audit firm, they should charge a higher interest rate on private loans. Our findings suggest that the impact of operating leases on the interest rate is higher if the firm is audited by non-Big 4 audit firms.

Keywords: Operating leases, bank loans, audit quality, disclosure vs. recognition, loan interest rate

Suggested Citation

Chu, Ling and Mathieu, Robert and Mbagwu, Chima, Audit Quality and Banks’ Assessment of Disclosed Accounting Information (April 22, 2013). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2254947

Ling Chu

Wilfrid Laurier University ( email )

75 University Ave W
Waterloo, Ontario N2L 3C5
Canada

Robert Mathieu

Wilfrid Laurier University ( email )

75 University Ave W
Waterloo, Ontario N2L 3C5
Canada
519-884-1970, x3142 (Phone)

Chima Mbagwu (Contact Author)

Wilfrid Laurier University ( email )

School of Business & Economics
Waterloo, ON N2L3C5
Canada
5198840710 ext 2803 (Phone)
5198840201 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,589
PlumX Metrics