The influence of audit quality indicators on the quality of forecast reporting in group management reports

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Abstract

We investigate whether audit firm characteristics, potentially related to audit quality, affect the quality of forecast reporting in Germany. For this purpose, we use audit fees, the non-audit fee ratio, the audit firm’s tenure, and the audit firm’s industry specialization as indicators of audit quality. Our sample consists of German HDAX companies for the years 2017–2020. The results do not indicate a significant effect of audit fees on the quality of forecast reporting. However, we find a weakly significant positive relationship between the non-audit fee ratio and the quality of forecast reporting. Furthermore, we observe that a medium-length audit firm tenure (4 to 10 years) leads to significantly higher and a long audit firm tenure (over 10 years) leads to significantly lower quality of forecast reporting. Finally, our findings suggest a weakly significant higher quality of forecast reporting if the audit firm is an industry specialist. Our study extends previous research on the relationship between auditor characteristics and financial reporting quality by focusing on forecast reporting quality. Furthermore, we propose using forecast reporting quality as an alternative proxy for audit quality to overcome the weaknesses of the commonly used discretionary accruals.

Keywords: Audit Quality, Audit Fees, Non-Audit Service Fees, Audit Firm Tenure, Audit Firm Industry Specialization, Forecast Report

Authors’ individual contribution: Conceptualization — R.Q.; Methodology — J.K. and R.Q.; Formal Analysis — J.K.; Writing — Original Draft — J.K.; Writing — Review & Editing — R.Q.; Supervision — R.Q.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M41, M42, M48

Received: 09.01.2025
Accepted: 14.03.2025
Published online: 18.03.2025

How to cite this paper: Kordisch, J., & Quick, R. (2025). The influence of audit quality indicators on the quality of forecast reporting in group management reports. Corporate Ownership & Control, 22(1), 125–138. https://doi.org/10.22495/cocv22i1art10