Is Silence Really Golden? Examining Investor Responses when Auditors Disclose Their Involvement with Other Information in the Annual Report

Regulators have expressed concerns that investors misunderstand auditors’ responsibility to “read and consider” other information in the annual report (e.g., the MD&A), often assuming the entire annual report has been audited. This is particularly a concern in the U.S. where auditors do not disclose their responsibilities for other information. Accordingly, we examine how investors perceive and use other information when auditors disclose their responsibility to “read and consider” versus alternative disclosures required under other regulatory regimes. We find investors interpret auditors’ “consideration” as providing some assurance/comfort, despite explicitly stating that no assurance is provided. We also find investors view auditor involvement as enhancing the reliability of other information, particularly when that information is financial versus nonfinancial. As regulators consider expanding auditor involvement with other information, our study provides important insights into how investors perceive auditors’ current level of involvement and how perceptions might change if their involvement were to increase