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Increasing the disclosure of key audit matters (KAMs) has been an important change in audit reports in recent years. After the implementation of this policy, what changes have taken place in the behaviour of auditors after the implementation of this policy? What impact has it had on the audit report? A series of problems deserve systematic analysis and empirical testing. This paper examines the relationship between the communication of KAMs and earnings management. We examined quasi‐natural experimental data shaped by new auditing standards issued by the Ministry of Finance of China on 23 December 2016. The new auditing standards have been implemented in phases for the listed companies. We find that (1) communicating KAMs in audit reports restrains the auditor's motivational reasoning behaviour by triggering rationality constraints and improves the auditor's professional scepticism, thus improving audit quality and significantly reducing the company's accrued earnings management level. (2) The influence of communicating KAMs on earnings management is more significant for sampled firms with high external financing dependence and low marketization, revealing its supplementary role in the existing corporate governance mechanism. The findings of this paper enrich existing research on KAMs and supplement important empirical evidence from the Chinese market for assessing the effects of audit reporting reforms worldwide.

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PurposeThe privatization of infrastructure promotes efficiency and service standards. While cross-border private participation infrastructure (PPI) projects hosted in emerging markets have become more prevalent in recent years, there have also been more failures. The purpose of this paper is to investigate how governance distance affects the survival of cross-border PPI projects.Design/methodology/approachThe authors provide theoretical justification and empirical evidence to verify our views. The authors test the hypotheses on a sample of 4,678 cross-border PPI project investments made in emerging market countries between 1990 and 2016. Estimation techniques consist of a binary logistic regression model and a rare events logistic model.FindingsThe findings suggest that increased governance distance can lead to project failure. The study results show that governance distance is negatively correlated with the probability of project survival. Greenfield investment intensifies the negative effect of governance distance while competitive contracts mitigate the negative effect of governance distance.Practical implicationsThe results reveal that transnational investment in infrastructure projects is susceptible to institutional differences between home and host countries. Therefore, both private enterprises and host government should pay attention to the impact of inter-country differences on negotiations and project operation. Competitive contracts mitigate this negative effect, but entering in the form of greenfield investment amplifies the negative effect of distance.Originality/valueTransnational industrial engineering projects are easily affected by the differences in governance levels between the two countries. This study introduces governance distance into the field of infrastructure projects, focusing on the impact of differences between home and host countries on transnational projects. The findings on infrastructure projects that are closely related to host government contribute to the literature by broadening the research of institution and distance.

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