Private lenders' demand for audit

Richard M. Baylis, Peter Burnap, Mark A. Clatworthy, Mahmoud A. Gad, Christopher Kam Man Pong

Research output: Contribution to journalArticle

Abstract

We study clauses in private lending agreements requiring auditors to assure lenders of borrowers’ compliance with financial covenants. Auditors are required under general purpose financial reporting to review covenant compliance. However, by informing lenders directly that they have no knowledge of default, auditors may increase their litigation risk. We find that auditor covenant compliance assurance clauses are significantly associated with more complex contractual adjustments to net income, the extent of reliance on accounting information in the contract, intangibility of borrowers’ assets, the number of lenders and loan maturity. We provide novel evidence of the audit market enhancing efficient contracting.
Original languageEnglish
Pages (from-to)78-97
Number of pages20
JournalJournal of Accounting and Economics
Volume64
Issue number1
Early online date9 Jun 2017
DOIs
StatePublished - Aug 2017

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audit
Compliance
compliance
Covenant
Audit
lending
maturity
loan
accounting
contract
assets
reporting
adaptation
income
demand
market
purpose
risk
information
Adjustment

Cite this

Baylis, R. M., Burnap, P., Clatworthy, M. A., Gad, M. A., & Pong, C. K. M. (2017). Private lenders' demand for audit. Journal of Accounting and Economics, 64(1), 78-97. DOI: 10.1016/j.jacceco.2017.06.001

Baylis, Richard M.; Burnap, Peter; Clatworthy, Mark A.; Gad, Mahmoud A.; Pong, Christopher Kam Man / Private lenders' demand for audit.

In: Journal of Accounting and Economics, Vol. 64, No. 1, 08.2017, p. 78-97.

Research output: Contribution to journalArticle

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Baylis, RM, Burnap, P, Clatworthy, MA, Gad, MA & Pong, CKM 2017, 'Private lenders' demand for audit' Journal of Accounting and Economics, vol 64, no. 1, pp. 78-97. DOI: 10.1016/j.jacceco.2017.06.001

Private lenders' demand for audit. / Baylis, Richard M.; Burnap, Peter; Clatworthy, Mark A.; Gad, Mahmoud A.; Pong, Christopher Kam Man.

In: Journal of Accounting and Economics, Vol. 64, No. 1, 08.2017, p. 78-97.

Research output: Contribution to journalArticle

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Baylis RM, Burnap P, Clatworthy MA, Gad MA, Pong CKM. Private lenders' demand for audit. Journal of Accounting and Economics. 2017 Aug;64(1):78-97. Available from, DOI: 10.1016/j.jacceco.2017.06.001