The Role of Audit Firms and Partners in a Quasi-Voluntary Risk Disclosure Setting

This paper examines if audit firm and audit partner level factors explain risk disclosure intensity in a quasi- voluntary setting where the expected level of risk disclosures is explicitly shown by a new detailed standard. Unlike in the US and other major jurisdictions, in Finland risk reports have to be audited, and hence, the incumbent auditor has to give positive assurance for these reports. We analyze the risk disclosures of the Finnish Nasdaq Helsinki listed clients in three dimensions and show that in line with Carroll’s (1979) model, the audit firms differ in their responsiveness to the new standard. There is variation in the average risk disclosure levels of the clients of the Big-4 firms which decreases as time elapses. At the audit partner level we document that risk disclosure scores are higher for clients who are audited by experienced audit partners (as measured by the number of audited risk reports and foreign working experience). Moreover, we find that women audit partners relate positively to the level of risk disclosures. This study contributes to previous literature by shedding light to audit partner characteristics that affect assurance of risk reviews in a quasi-voluntary setting and also, by providing evidence on the differences of Big-4 firms regarding their strategy to assure softer accounting information. We provide practical implications for regulators who consider different approaches to standardize the assurance of softer accounting information.