The delay in recognizing goodwill impairment: flawed audit methodology or insufficient effort

dc.contributorJohnson, Peter M.
dc.contributorStone, Mary S.
dc.contributorDoxey, Marcus M.
dc.contributorBarrett, Bruce E.
dc.contributorJindapon, Paan
dc.contributor.advisorLopez, Thomas J.
dc.contributor.authorSorensen, Trevor
dc.contributor.otherUniversity of Alabama Tuscaloosa
dc.descriptionElectronic Thesis or Dissertationen_US
dc.description.abstractIn this study I examine whether the delay in recognizing goodwill impairment is associated with an audit process failure. Prior research finds that economic indicators of goodwill impairment precede the actual recognition of impairment by at least three years (Hayn and Hughes, 2006; Li et al., 2011; Ramanna and Watts, 2012; Li and Sloan, 2014). Griffith et al. (2015) suggest that auditors’ inability to properly audit fair value estimates (i.e., an audit process failure) is potentially the result of the auditor using a flawed methodology and/or an overreliance on management assertions (i.e., inadequate effort). I explore which of these is main explanation for the delay in recognizing goodwill impairment. Using a logistic model, I identify unrecognized goodwill impairment companies (UGI) and match them with companies that had no unrecognized goodwill impairment (NGI) and companies that recognized goodwill impairment (IMP). Utilizing fees as a proxy for audit effort, I provide evidence that auditors put forth more effort to test UGI companies for impairment when compared to NGI companies. This is consistent with auditors putting forth more effort when indicators of impairment are present. On the other hand, I find that auditors put forth the same level of effort for UGI and IMP companies. This is inconsistent with the expectation of increased effort due to the potential for material misstatement and increase litigation risk to the auditor since no impairment is recognized by UGI companies. Combined with Griffith et al., I infer that both a flawed methodology and insufficient audit effort contribute to the delay in recognizing goodwill impairment.en_US
dc.format.extent68 p.
dc.publisherUniversity of Alabama Libraries
dc.relation.hasversionborn digital
dc.relation.ispartofThe University of Alabama Electronic Theses and Dissertations
dc.relation.ispartofThe University of Alabama Libraries Digital Collections
dc.rightsAll rights reserved by the author unless otherwise indicated.en_US
dc.titleThe delay in recognizing goodwill impairment: flawed audit methodology or insufficient efforten_US
dc.typetext of Alabama. Culverhouse School of Accountancy University of Alabama
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