افشای ارزش منصفانه دارایی های برنامه بازنشستگی و هزینه های حسابرسی Fair value disclosure of pension plan assets and audit fees

1. Introduction Pension assets in a defined benefit plan have been measured and disclosed with fair value in firms’ annual reports. However, only after the newly revised reporting standard, FAS 132(R)-1 Employers’ Disclosures about Postretirement Benefit Plan Assets, (or ASC 715), The U.S. Security Exchange Commission (SEC) registrant firms are required to expand the disclosure requirements of pension assets with fair market values effective December 15, 2009. More specifically, FAS 132(R)-1 requires plan-sponsoring firms to provide more detailed fair value information including fair value hierarchy and valuation methods in 10K filings. Taking advantage of these disclosure requirement changes, we investigate whether 1) the different hierarchy structure of pension assets has a different impact on audit fees, a proxy for auditors’ audit efforts, and 2) a more detailed disclosure requirement itself can affect audit fees. A long line of auditing research finds that client attributes, such as complexity and inherent risk, are vital determinants of audit fees because more complex clients tend to necessitate more difficult and timeconsuming audits (Charles, Glover, & Sharp, 2010; Hay, Knechel, & Wong, 2006). However, there is scant research on auditors’ response to a firm’s additional disclosure of fair value assets alone. Moreover, it is not clear whether the composition of fair value assets would affect the inherent risk of audit, and therefore require more audit work. For example, Goncharov, Riedl, and Sellhorn (2014) find that auditors charge lower fees for fair valued properties compared to properties valued at historical cost because impairment tests are required for properties valued at historical cost, but not for those valued at fair values. Therefore, fair value accounting does not necessarily increase auditors’ efforts or audit fees. On the other hand, some prior studies document that compared to the fair value of assets using quoted prices in the active market (Level 1) and significant other observable inputs (Level 2), fair value measurements using unobservable inputs (Level 3) are more susceptible to managerial discretion (Jaggi, Winder, & Lee, 2010; Song, Thomas, & Yi, 2010). In addition, Ettredge, Xu, and Yi (2014) also argue that Level 3 assets rely more on subjective assumptions and estimates, and therefore audit fees increase with fair value assets with more Level 3 inputs in bank holding company audits. The PCAOB (AU section 328) requires auditors to obtain sufficient audit evidence to provide reasonable assurance for fair value measurements and disclosures, including testing management’s process of valuation and developing independent estimates. Since fair value measurements with less observable inputs are inherently imprecise, auditors’ additional audit work is centered on Level 3 pension assets when fair value inputs are disclosed. We expect that this additional audit work required for firms that have more Level 3 pension assets would lead to an increase in audit fees.