The impact of the EU Audit Reform on the financial reporting of multinational groups.

The goal of this project is to investigate the impact of the EU Audit Reform on various aspects of multinational group audits (MGAs). The Audit Reform came into effect as of June 2016 with the objective to improve the quality of statutory audits and restore consumer trust in reported financial information via a plethora of regulatory measures. Nonetheless, the Audit Reform ushered in significant complexities for both audit firms and, in particular, their multinational clients. The extent to which these complexities prevent the new audit legislation from achieving its objectives is unclear and calls for more research on their effect on MGAs. The primary goal of the Audit Reform was to improve financial statement quality (through audit quality) but also to increase auditor competition (particularly at the top end of the audit market) and to further harmonize the statutory audit function within the EU. Despite the latter objective on harmonization, the Audit Reform offers a certain level of flexibility to Member States in adopting specific provisions of the legislation. Studies have observed significant variation in the implementation of the Regulation across EU Member States in, for example, mandatory firm rotation. Such differences result in a lack of harmonization across the EU and pose significant challenges to multinational group audits of groups that have subsidiaries across multiple EU Member States. The research project investigates the impact of the Audit Reform on three separeae research objectives. The first objective is to investigate the auditor choice in multinational groups. Particularly, we aim to understand what drives the choice for certain auditors and how this choice was affected by the Audit Reform. The second objective focuses on the impact of the Audit Reform on the financial statement quality of the multinational groups and, furthermore, whether its heterogeneous implementation has led to Member State variation in financial statement quality. Finally, the project investigates the impact of the Audit Reform on the financing costs of multinational groups. The focus is on the cost of debt as in Europe companies largely finance themselves with debt rather than equity. Again, variation in cost of debt driven by differences in implementation by Member States will be investigated.