تقاضای وام دهندگان خصوصی برای حسابرسی Private lenders’ demand for audit

1. Introduction Accounting covenants are widely used in private lending agreements to mitigate conflicts of interest between shareholders and lenders. These covenants increase contracting efficiency by providing the basis for the optimal allocation of control rights when contracts are incomplete (Watts and Zimmerman, 1986; Roberts and Sufi, 2009a; Christensen and Nikolaev, 2012; Christensen et al., 2016).1 Auditors are required to check borrowers‟ compliance with covenants in private lending agreements under GAAP. In particular, accounting and auditing standards require auditors to confirm the going concern assumption and to ensure the appropriate classification of debt as current or non-current, which entails checking covenant compliance. In addition to these standard obligations to verify compliance, however, auditors may offer a letter providing specific negative assurance directly to lenders by certifying that they have no knowledge of any default. What is unclear is whether this additional covenant compliance assurance occurs at random, or whether it can be explained by efficient contracting. To date, the literature has been largely silent on the conditions under which lenders seek such assurance from auditors. 2 We seek to address this question in this paper. The fact that auditors report on borrowers‟ covenant compliance directly to lenders may be economically important because of its effects on auditor liability. Under the GAAP regime, auditors are not liable to lenders because lenders are regarded as non-contractual third parties to standard audit arrangements. Nevertheless, auditors may become liable to third parties depending on whether auditors are aware that financial statements are to be used for particular purposes by known parties, and whether there is any conduct by the auditors linking them to third parties (Feinman, 2015). Because they require auditors to write to lenders to state they have no knowledge of any defaults on the covenants, auditor covenant compliance assurance clauses are likely to extend auditors‟ liability to lenders, even though there is no contract between them. This is because it will be more difficult for auditors to convince a court that they were not aware who they were reporting to and what their reports were to be used for.