In 2016, China made new regulations on audit report. The core change is that key audit matters are added to the audit report. Since then, key audit matters have become a new hotspot in the field of audit research. This paper mainly studies the disclosure status of key audit matters in China and the factors affecting the disclosure. This paper will quantify the characteristics of key audit matters and study its impact on the disclosure of key audit matters from the two levels of firm and auditor. This article uses data from listed companies that have disclosed key audit matters from 2016 to 2018, and uses mean testing and regression research methods to analyze how the characteristics of firms and auditors will affect the disclosure of key audit matters. The study found that: 1) the number of key audit matters, the length of the text, the length and proportion of digital figures, and industry-specific key audit matters fluctuated significantly from 2016 to 2017 and stabilized from 2017 to 2018; 2) The size of the firm, the audit term, the firm’s industry expertise, and the auditor’s gender, years of practice, and industry expertise will significantly affect the disclosure of key audit matters. This article provides evidence that the characteristics of firms and auditors affect the disclosure of key audit matters and expands research on key audit matters.
KeywordsKey Audit MattersFirm CharacteristicsAuditor’s Personal Characteristics
Bell, T. B., Causholli, M., & Knechel, R. (2015). Audit Firm Tenure, Non-Audit Services, and Internal Assessments of Audit Quality. Journal of Accounting Research, 53, 461-509. https://doi.org/10.1111/1475-679X.12078 http://research.chicagobooth.edu/arc/journal-of-accounting-research/online-supplements
Cade, N., & Hodge, F. (2014). The Effect of Expanding the Audit Report on Managers’ Communication Openness. Working Paper. https://doi.org/10.2139/ssrn.2433641
Cahan, S. F., Jeter, D. C., & Naiker, V. (2011). Are All Industry Specialist Auditors the Same? Auditing: A Journal of Practice & Theory, 30, 191-222. https://doi.org/10.2308/ajpt-10181
Carcello, J. V., & Nagy, A. L. (2004). Audit Firm Tenure and Fraudulent Financial Reporting. Auditing: A Journal of Practice & Theory, 23, 55-69. https://doi.org/10.2308/aud.2004.23.2.55
Chen, L. H., Zhang, C., Zhang, L. P., & Niu, Y. L. (2019). Correlation between Disclosure of Key Audit Matters and Earnings Value. Auditing Research, 3, 65-74.
Chen, X. L., Zhang, X. H., & Yan, H. M. (2016). Audit Firm Transformation, Auditor’s Personal Characteristics and Accounting Conservatism. Accounting Research, 6, 77-85.
Christensen, B. E., Glover, S. M., & Wolfe, C. J. (2014). Do Critical Audit Matter Paragraphs in the Audit Report Change Nonprofessional Investors’ Decision to Invest? Auditing: A Journal of Practice & Theory, 4, 71-93. https://doi.org/10.2308/ajpt-50793
De Angelo, L. (1981). Auditor Size and Auditor Quality. Journal of Accounting & Economics, 3, 183-199. https://doi.org/10.1016/0165-4101(81)90002-1
Goodwin, J., & Wu, D. H. (2016). What Is the Relationship between Audit Partner Busyness and Audit Quality? Contemporary Accounting Research, 33, 341-377. https://doi.org/10.1111/1911-3846.12129
Gutierrez, E., Minutti-Meza, M., Tatum, K. W., & Maria, V. (2018). Consequences of Adopting an Expanded Auditor’s Report in the United Kingdom. Review of Accounting Studies, 23, 1543-1587. https://doi.org/10.1007/s11142-018-9464-0
Habib, A. (2011). Audit Firm Industry Specialization and Audit Outcomes: Insights from Academic Literature. Research in Accounting Regulation, 23, 1-129. https://doi.org/10.1016/j.racreg.2011.06.008
Han, W. F. (2016). Auditor’s Personal Experience, Industry Expertise and Audit Fees. Accounting & Economics Research, 6, 91-108.
Hardies, K., Breesch, D., & Branson, J. (2015). The Female Audit Fee Premium. Auditing: A Journal of Practice & Theory, 34, 171-195. https://doi.org/10.2308/ajpt-51079
Hossain, S., & Chapple, L. (2018). Does Auditor Gender Affect Issuing A Going Concern Opinion? Accounting and Finance, 58, 1027-1036.
Hsieh, Y. T., & Lin, C. J. (2016). Audit Firms’ Client Acceptance Decisions: Does Partner-Level Industry Expertise Matter? Auditing: A Journal of Practice & Theory, 35, 97-120. https://doi.org/10.2308/ajpt-51292
Hui, N. (2019). Industry Expertise, Intellectual Capital and Audit Performance of Accounting Firms. Finance & Accounting Monthly, 3, 23-27.
Kang, Y. J. (2019). Are Audit Committees More Challenging Given a Specific Investor Base? Does the Answer Change in the Presence of Prospective Critical Audit Matter Disclosures? Accounting, Organizations & Society, 77, 1-14. https://doi.org/10.1016/j.aos.2019.04.001
Lennox, C. S., & Wu, X. (2018). A Review of the Archival Literature on Audit Partners. Accounting Horizons, 32, 1-32. https://doi.org/10.2308/acch-51942
Lennox, C. S., Schmidt, J. J., & Thompson, A. (2019). Are the Expanded Model of Audit Reporting Informative to Investors? Evidence from the UK. Working Paper.
Li, J. T., Wang, D. M., & Yang, Y. C. (2012). A Study on the Correlation between Auditor’s Personal Characteristics and Audit Expense Rate—Empirical Data from Chinese Listed Companies in 2009. The Chinese Certified Public Accountant, 3, 58-64.
Liu, D., & Chen, J. T. (2018). Analysis of Key Audit Matters in the New Audit Report—Based on the Audit Report of A + H Share Listed Companies. Finance & Accounting Monthly, 12, 142-147.
Liu, F., & Zhou, F. Y. (2007). Does International Big Four Mean High Audit Quality— Based on the Test of Accounting Conservatism. Accounting Research, 3, 79-87.
Lu, J., & Zhang, J. D. (2018). Preliminary Study on Disclosure of Key Audit Matters in Audit Reports—Evidence from A + H Share Listed Companies. Accounting Research, 2, 83-89.
Luo, C. H., Tang, J. X., & Wang, Y. S. (2014). A Study on the Personal Characteristics of Certified Public Accountants and the Conservatism of Accounting Information. Auditing Research, 1, 71-78.
Ran, M. D., & Xu, Y. Z. (2017). Research on the Improvement of Registered Accounting Audit Report—Based on the Sample of Audit Report Reform in China. Auditing Research, 5, 62-69.
Reid, L. C., Carcello, J. V., Li, C., & Neal, T. L. (2019). Impact of Auditor Report Changes on Financial Reporting Quality & Audit Costs: Evidence from the United Kingdom. Contemporary Accounting Research, 36, 1501-1539. https://doi.org/10.1111/1911-3846.12486
Sirois, L. P., & Bera, P. (2018). The Informational Value of Key Audit Matters in the Auditor’s Report: Evidence from an Eye-Tracking Study. Accounting Horizons, 32, 141-162. https://doi.org/10.2308/acch-52047
Wang, S. H., Liu, Z. Q., & Zhang, Y. (2017). Fair Value, Industry Expertise and Audit Fees. Auditing Research, 2, 48-56.
Wang, S. N., Song, Y. Y., & Xu, Y. F. (2018). Does the Auditor’s Industry Expertise Mitigate Asset Mispricing? Auditing Research, 2, 96-103.
Wang, Y. Y., Xu, R., Wang, C. L., & Yu, L. S. (2018). Can the Key Audit Matters Increase the Communication Value of the Audit Report? Accounting Research, 6, 86-93.
Wei, C. Y. (2014). Auditor Industry Expertise and Client Tax Avoidance. Auditing Research, 2, 74-83.
Yan, X., Zhang, R. F., & Huang, J. (2018). Research on the Spillover Effect of Key Audit Reporting Standards. Auditing Research, 6, 75-82.
Yi, X., & Mao, Y. S. (2019). Reform of Audit Report, Audit Quality & Audit Cost— Empirical Evidence from A + H Share Market. Finance & Accounting Monthly, 18, 106-114.
Yuan, H. Q., & Li, H. J. (2003). Organizational Form, Scale and Audit Quality of Accounting Firms. Auditing Research, 1, 32-37.
Zhang, W. F. (2018). Audit Firm Size, Audit Tenure and Audit Quality. Finance & Accounting Monthly, 2, 135-142.