Consequences of the Adoption of the Expanded Auditor’s Report: Evidence from Hong Kong

Liao, Lin; Minutti‐Meza, Miguel; Zhang, Yun; Zou, Youli

doi:10.2139/ssrn.3392449

Cited by 38 publications

(54 citation statements)

References 50 publications

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“…The transition to the IAASB expanded report rules in these jurisdictions involved a large number of companies, from all sizes and industries. 35 Liao et al (2019) examine the adoption of the expanded report in Hong Kong and Mainland China. They take advantage of the one-year gap between the effective dates in these jurisdictions and use the companies in one market as a control group for the other market, resulting in including large samples of adopters and non-adopters in the test.…”

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confidence: 99%

“…Finally, Goh et al (2019) find an incremental market reaction to the expanded report for companies in Mainland China. Liao et al (2019), Zeng et al (2020), andGoh et al (2019) take different approaches in dealing with the one-time implementation of the rules in these jurisdictions. The divergence in their conclusions may be partially attributable to research design choices.…”

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confidence: 99%

“…In Mainland China inventory is a higher concern than property valuation. These risks reflect differences in some types of companies in these two jurisdictions (Liao et al 2019).…”

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confidence: 99%

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The art of conversation: the expanded audit report

Minutti‐Meza

2021

Accounting and Business Research

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The new generation of expanded audit reports includes disclosures about significant matters in a company's financial reporting and its audit. These disclosures are a landmark change in auditors' responsibility to provide information to the public. I examine expanded reports in various jurisdictions, why they became mandatory, what the evidence from their implementation is, and whether they have fulfilled the expectations of regulators and other stakeholders. Expanded reports are intended to increase the information content and usefulness of audit opinions, to increase external monitoring of auditors and management, and to foster a more open conversation between auditors and users of financial reporting. However, existing regulatory requirements, conflicting auditors' incentives to provide new information, and evidence from the expanded reports' implementation call into question whether these objectives have been met. It is my hope that expanded reports are only a first step towards enhanced auditor reporting.

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The art of conversation: the expanded audit report

Minutti‐Meza

2021

Accounting and Business Research

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“…This study also examines the impact of audit committee effectiveness on the disclosure of KAMs. Annual reports were analysed to gather information on the number of KAMs reported in the auditor's report, the type of auditor, whether it is a Big 4 or Non Big 4, total audit fees charged by auditor for the current year and company's The measurements of KAMs used in this study are adapted from previous studies (Bédard et al 2015;Ferreira & Morais 2020;Liao et al 2019;Pinto & Morais 2019). This study develops an audit committee index to measure the effectiveness of audit committee.…”

Section: Methodsmentioning

confidence: 99%

Audit Committee Effectiveness and Key Audit Matters

Abu¹,

Jaffar²

2020

AJAG

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Key audit matters (KAMs) are important for financial statement users as they provide clarity and in-depth understanding of financial statement audits. Empirical research on KAMs remains at an early stage particularly in Malaysia. Therefore, the aim of this study is to analyse the disclosure practises of KAMs and to investigate the effects of audit committee effectiveness on KAMs. The study sample consists of the top 100 FTSE index companies in 2016, the first year of implementation of mandatory KAM disclosure under the International Standard of Auditing 701 (ISA 701). Findings show that the majority of sample companies reported two KAMs, mainly about 'revenue recognition' and 'impairment of goodwill and intangible assets'. Results indicate that independent, financial experts and the number of audit committee meetings have a negative relationship with the number of KAMs. However, only companies that have frequent audit committee meetings are able to reduce the number of KAMs. Results provide support on the role of audit committee effectiveness to reduce agency problem between manager and shareholders. Additionally, results provide important policy implications whether imposing unnecessarily high criteria of audit committee members can contribute towards an informative auditor's report.

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“…Existing research examining IAASB KAMs and PCAOB CAMs reaches mixed conclusions on whether and how expanded audit disclosures affect investor decision making, audit fees and quality, engagement dynamics, and auditor liability outcomes. Bédard et al (2019), Gutierrez et al (2018), and Liao, Minutti-Meza, Zhang, and Zou (2019) find that the introduction of expanded reporting regimes in France, the UK, and China, respectively have no effect on investor reactions, audit fees, audit report delay, or audit quality. Conversely, Lennox, Schmidt, and Thompson (2019) find that UK investors react to KAMs over long time horizons;…”

Section: Institutional Backgroundmentioning

confidence: 97%

Audit Partner Style in Key Audit Matter Reporting Decisions.

Zehms¹

2020

Preprint

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We examine whether partners have unique decision styles for key audit matters (KAMs), by which we mean stable within-partner similarities and between-partner differences in KAM reporting over time and across clients and industries. Using a sample of UK KAMs, we find unique partner styles in KAM reporting volume, topical diversity, and communication after controlling for client and audit firm variation. Partners with styles for greater KAM volume, topical diversity, and 'insight' verbiage (e.g., "think" or "consider") command higher fees. Further, partners who issue KAMs with more cognitively complex, causal (e.g., "because" or "effect"), or insight verbiage are more likely to be audit fee growth leaders, while partners who issue longer KAMs are less likely to be growth leaders. We find no association between partners' styles and either report delay or audit quality. Our results illustrate that partners make unique KAM reporting judgments, countering concerns about audit firms issuing 'boilerplate' KAMs.

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Consequences of the Adoption of the Expanded Auditor’s Report: Evidence from Hong Kong

Cited by 38 publications

References 50 publications

The art of conversation: the expanded audit report

The art of conversation: the expanded audit report

Audit Committee Effectiveness and Key Audit Matters

Audit Partner Style in Key Audit Matter Reporting Decisions.

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