Auditors' Role in Fair Value Monitoring: Evidence from Security-Level Data
Name
Berfeld-nberfeld-PhD-Sloan-2021-thesis.pdf
Description
Thesis PDF
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660.74 KB
Format
Adobe PDF
Checksum (MD5)
457cb4569d636e9b6caf3a417e395ced
Author(s)
Berfeld, Natalie
Advisor(s)
Shroff, Nemit
Weber, Joseph P.
Date Issued
September 2021
Publisher
Massachusetts Institute of Technology
Abstract
I study the role of the audit firm as monitor of its clients’ fair value (FV) measurements. Specifically, using a setting in the insurance industry where I can identify fair values at the security level, I find that audit firms’ security-specific FV experience is associated with increased consistency in valuations among clients holding the same security, consistent with audit firms developing FV expertise at the security level. Moreover, FV consistency is higher when the audit office is in a more concentrated market, and when the client is economically less important to the audit office, consistent with audit office market incentives affecting FV audit quality. My study sheds light on the mechanisms that shape the role of auditors in monitoring the increasingly important yet subjective FV determination process.
MIT Department
Sloan School of Management
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