Title: Options approach to external assurance in non-financial reporting

Authors: Marcos Vizcaíno-González

Addresses: Department of Business, Faculty of Economics and Business, Universidade da Coruña, Elviña, 15071 A Coruña, Spain

Abstract: Using a financial options methodological framework based on stochastic processes and partial differential equations, this research proposes a model for valuing non-financial reporting without external assurance, based on the assumption of the existence of communication flaws in the disclosure process. A model for valuing non-financial reporting with external assurance is also formulated, based on the assumption of external assurance representing an additional expenditure aimed at mitigating those communication flaws. An expression for the value added by external assurance is then isolated through comparison. This expression can be interpreted as an external assurance-related premium reward or as an external assurance-related premium risk. Implications for researchers and practitioners are discussed.

Keywords: financial options theory; partial differential equations; external assurance; non-financial reporting; premium risk; premium reward.

DOI: 10.1504/IJGFI.2021.116843

International Journal of Governance and Financial Intermediation, 2021 Vol.1 No.2, pp.155 - 166

Received: 01 Dec 2020
Accepted: 23 Feb 2021

Published online: 04 Aug 2021 *

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