Accounting Standards, Earnings Transparency and Audit Fees: Convergence with IFRS in China

Abstract

This study investigates the effect of China's new accounting standards (which converged with International Financial Reporting Standards (IFRS) in 2007) on a new market-based attribute of earnings qualityearnings transparency (defined as the explanatory power of the returns-earnings relation at firm level) -and their association with audit pricing. Using China's listed companies from 2001 to 2012 as a sample, we find that the adoption of China's new accounting standards, specifically the introduction of fair value measurement and the change in the accounting treatment of minority interest income, increases earnings transparency. We also find that earnings transparency negatively impacts audit fees, and the adoption of new accounting standards attenuates the negative association between earnings transparency and audit fees. This study has implications for standard setters, auditors and managers regarding the change in the information environment of investors resulting from IFRS convergence in China from a new perspective.

Taxation efficiency and accounting assisted transparency, insight into a European framework

“…Barth et al (2013) have studied the impacts of the capital market to the improvement of transparency of the profits through the financial states of imported businesses. Ye et al (2018) have examined the impact of the transparency of profits to the auditory market by studying the impact this has in conditions of balance of auditory mechanisms and processes. Based on the results of their study, the adoption of new accounting standards reduces the negative relation between transparency of income and audit expenses, a fact that shows that the increase of the complexity of the audit leads to the increase of the transparency of income while at the same time it increases the balance of audit expenses.…”

Investigating the Relationship between Intellectual Capital and Audit Quality Based on China Audit Market

“…Besides the reputation effect, the pricing of service is generally based on workload that originating from clients. Ye et al (2018) imply a direct positive relationship between audit pricing and audit workload and enrich the relationship between audit fees and business complexity by considering the effect of information transparency (Ye, Gao, & Zheng, 2018). However, there are still some other viewpoints, which show that the high charge may imply economic dependence on clients (Tepalagul & Lin, 2015;Tobi, Osasrere, & Emmanuel, 2016), that poses a threat to the audit independence, then eroding the audit quality.…”

The role of the national institutional environment in IFRS convergence: a new approach

“…Based on the studies by Benson et al (2015) and Linnenluecke et al (2017b), we extend the IFRS-related literature review of the nine accounting journals in the Asia-Pacific region to 2018. We identify that 33 articles specifically discuss the outcomes of IFRS adoption such as the readability of financial statements (Richards and van Staden, 2015;Cheung and Lau, 2016), predictability of earnings (Bodle et al, 2016;Palea and Scagnelli, 2017), earnings transparency (Ye et al, 2018), audit (Nam, 2018), usefulness and accuracy of goodwill disclosure (Amor os Mart ınez and Cavero Rubio, 2018), and information asymmetry of the stock market (Abad et al, 2018). Additionally, numerous studies investigate IFRS-related issues in emerging markets such as Jordan (Al-Htaybat, 2018), Malaysia (Che Azmi and English, 2016), Oman (Lourenc ßo et al, 2016), Brazil (Nakao and Gray, 2018), and China (Yang et al, 2018;Ye et al, 2018).…”