In 2008, the IRS added several schedules to Form 990, including Schedule R, related party transactions. Utilizing Schedule R, we investigate and descriptively document the existence of related parties and the types of transactions engaged in with those related parties. Then, to provide evidence of the usefulness of these disclosures, we tie into the literature on financial reporting quality. Prior research into financial reporting quality shows that donors discount program ratios when a nonprofit organization reports zero fundraising expenses, implying that they find reporting zero fundraising expenses to be a proxy for poor financial reporting quality. A plausible reason for organizations reporting zero fundraising expenses is that a related party conducts fundraising on the organization's behalf. Consistent with this interpretation, we find that when nonprofits disclose that fundraising services are provided by a related entity, they are more likely to report zero fundraising expenses. We also find that disclosure of related party fundraising mitigates donor discounting of the program ratio when zero fundraising expenses are reported. However, we only find that this mitigation occurs in nonprofits with sophisticated donors. In sum, we find evidence consistent with donors—in particular, sophisticated donors—using disclosures provided in Form 990 to supplement the amounts recognized. Our findings demonstrate the importance of, and are consistent with the use of, these related party disclosures. On a broader level, these findings provide insight into how thoroughly donors are willing to review Form 990 to get information relevant to their donation decision.

Statement of Financial Accounting Standards (SFAS) 141 (Accounting Standards Codification [ASC] 805) requires that firms record identifiable assets and liabilities acquired in business combinations at fair value. While the FASB argued that these fair values should provide users with incremental decision‐useful information, opponents have continuously argued that they are too difficult to reliably estimate and could be subject to managerial discretion. Using hand‐collected data from US mergers and acquisitions, we find that, on average, fair value adjustments predict future cash flows incrementally beyond pre‐deal book values and cash flows, goodwill, and other firm and deal characteristics. We also find that the relation between fair value adjustments and future cash flows varies predictably based on several factors that affect managers' ability and incentives to provide accurate estimates. Furthermore, despite prevailing concerns about their usefulness, we find that fair values for intangible assets predict future cash flows, on average. However, we find that this relation is driven primarily by the fair values of customer‐ and contract‐related intangible assets and that the fair values of other types of identifiable intangibles do not necessarily convey incremental decision‐useful information. Finally, we find that users appear to rely on the information conveyed by these disclosures, as evidenced by revisions to analysts' forecasts and changes in stock prices. Overall, our findings provide insight regarding the usefulness of current standards and users' reliance on fair values in business combinations.

International standards encourage auditors to consider regulatory factors and external parties during the risk assessment process. One such external party is the taxation authority, which monitors corporate conduct and uses the threat of tax audits to constrain managerial opportunism. This study examines whether tax enforcement influences auditors' perception of the risk of material misstatement on their engagements. Using a sample of companies listed on European exchanges, we assess the strength of tax enforcement at the country level based on the number of full‐time equivalent (FTE) employees in the tax audit and verification function relative to the size of the economy. Since auditors of these European listed companies must publicly disclose key audit matters (KAMs), we use the number of KAMs to capture auditors' perceptions of client‐level misstatement risk. Our results indicate that auditors report fewer KAMs in the presence of more FTEs in the tax audit and verification function. In cross‐sectional tests, we find that this negative association is stronger in settings where auditors are more inclined to incorporate the monitoring potential of the tax authority into their risk assessment, such as in countries with high book‐tax conformity and for auditors with greater exposure to complex tax issues. These findings offer new insights into the role of tax enforcement in auditors' decision‐making and have timely implications for accounting regulators and academics studying the determinants of KAMs.

In this study, we leverage judgment decomposition and information acquisition theories to develop and test an intervention to improve group auditors' identification of and response to component‐level qualitative risk. Improving group auditors' response to qualitative risk is important because (1) group audits are prevalent today and require multiple qualitative risk assessments, (2) auditors have historically overlooked qualitative risks, and (3) prior interventions have failed to improve auditors' response to qualitative risk. In an experiment with 88 audit partners and managers, we find that a hybrid risk assessment approach that combines elements of judgment decomposition and notetaking improves auditors' group audit planning decisions. Specifically, auditors utilizing our hybrid approach are better able to identify and respond to component‐level qualitative risks than auditors who use a holistic approach. Importantly, the improvement in qualitative risk response does not come at the expense of auditors' response to quantitative risk.