Jacey Katch ’19 G’21 and associate professor Ifeoma Udeh investigate auditing outcomes that can shift the perceived quality of financial statement information.
New research by Jacey Katch ’19 G’21 and associate professor Ifeoma Udeh in the Martha and Spencer Love School of Business explores financial information transparency and asymmetry.
Published in The Journal of Theoretical Accounting Research, “The associations between critical audit matters, internal control effectiveness, and going concern opinion” focuses on two safeguards that help investors feel more secure about a company’s financial information: internal control over financial reporting, and going concern opinions, and their effect on the communication of challenging, subjective, and complex audit issues.
ICFRs are procedures and policies put in place to ensure the accuracy and completeness of financial reporting. Going concern opinions are assessments by the company’s external auditor that could indicate financial distress or uncertainties of the company’s future.
Katch and Udeh examined over 2,000 large publicly traded companies to understand how both safeguards can influence the level of disclosures auditors make about issues they consider critical to their audit of a company’s financial statements. Their findings show that companies with strong internal checks and balances tend to have fewer critical audit matters disclosed by auditors.
However, if a company has a going concern opinion, it is more likely for their auditor to communicate more critical audit matters.
The disclosure of fewer critical audit matters (CAMs) indicates the absence of information asymmetry and signals increased reliability of the financial information to investors. While more CAMs could raise concerns, their disclosure by the auditors helps minimize transparency issues in financial information provided by a company to stakeholders.
Katch is the first Elon graduate of the Master of Science in Accounting program to become a Certified Fraud Examiner. While attending Elon, she was involved in Beta Alpha Psi, Club Tennis, and worked at the Moseley Center. Currently, she is a Cyber, Privacy and Forensics Senior Associate at PwC.
Udeh joined the Elon faculty in 2015 after earning her Ph.D. in Business with a major in accounting and a minor in security, assurance and risk from the Virginia Commonwealth University. Her professional experience includes roles in accounting and auditing.