Title: Audit quality and the value relevance of fair values

Authors: Jimi Siekkinen

Addresses: Hanken School of Economics, P.O. Box 287, 65101 Vaasa, Finland

Abstract: This paper examines whether audit quality and auditor independence have an impact on the information quality of fair values. It is assumed that higher audit quality and higher auditor independence decrease the incentives for managerial opportunism, thereby increasing investors' trust in book values. By analysing financial firms from 28 European countries, this study finds evidence that non-audit services have a positive association with the value relevance of Level 3 fair value assets. Furthermore, the more important the client is to the auditor, the lower is the value relevance of fair value estimates (Level 3). The association between a Big 4 auditor and the information quality of fair value estimates depends on the legal traditions in the firm's home country. The association is positive or non-existent in Northern and Western European countries and negative in Southern and Eastern European countries.

Keywords: IFRS 13; fair value accounting; auditor independence; fair value hierarchy; audit quality; value relevance.

DOI: 10.1504/IJAAPE.2017.085181

International Journal of Accounting, Auditing and Performance Evaluation, 2017 Vol.13 No.3, pp.227 - 253

Received: 17 Oct 2015
Accepted: 01 Aug 2016
Published online: 16 Jul 2017 *

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