Consequences of Expanded Audit Reports: Evidence from the United Kingdom’s Alternative Investment Market

Part of the Lubar Research Seminar Series

Speaker: Miguel Minutti-Meza , University of Miami 

The United Kingdom mandated the adoption of expanded audit reports in two waves, starting in 2013 and 2017, respectively. The second wave included small companies listed on the Alternative Investment Market (AIM), a growth market subject to light regulation and private monitoring. In this study, we first present descriptive evidence about the expanded reports of AIM companies. Next, we document that, on average, expanded reports in the AIM have negligible incremental information content for investors or consequences for the quality and cost of audits. Furthermore, variation in governance or oversight mechanisms for AIM companies do not systematically alter the consequences of expanded reports. However, we find some evidence that cross-sectional variation in expanded report disclosures is associated with changes in investors’ reaction to annual reports and audit fees. Finally, we conduct exploratory analyses of expanded report and companies’ decisions to list in the AIM. Our study extends the literature on expanded reports and is among the first to examine the incremental roles of company size and external monitoring for the consequences of key audit matters.