Costs and benefits of auditors' disclosure of critical audit matters: Initial evidence from the United States

Li, Valerie; Luo, Yan

doi:10.1016/j.adiac.2022.100641

Cited by 5 publications

(2 citation statements)

References 45 publications

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“…Porumb et al (2021) found that RMMs help lenders precisely assess borrowing risks, leading to less stringent loan contracting terms in the post-adoption period. Li and Luo (2023) found that reporting at least one CAM in an audit report is associated with incremental information to investors without an increase in audit fees. Goh et al (2023) found that the KAMs disclosure requirement in China is informative for users as proceeds by higher trading volume and earnings response coefficients and lower stock price synchronicity.…”

Section: Institutional Background Prior Research and Hypothesis Devel...mentioning

confidence: 97%

Does expanded disclosure in the audit report involve unintended consequences? Evidence from tax avoidance

Baatwah,

Hussainey

2024

IJAIM

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Purpose This study aims to examine how new regulation changes for the auditor’s report, so-called key audit matters (KAMs), influence tax avoidance. Design/methodology/approach This study uses data from firms listed on the Omani capital market over the period 2012–2019 and analyzes these data using pooled panel data regression with a robust standard error. It uses two common proxies for tax avoidance and two measures for the KAMs disclosure requirement. Findings This study finds a sharp decrease in the effective tax rate following the introduction of KAMs disclosure and the issuance of more KAMs in audit reports. This result is supported by several robustness checks. In an additional analysis, the authors observe interesting results, indicating that real earnings management mediates this association, while the audit committee plays a moderating role. The authors do not find a moderating effect of Big4 on this association, but find discrepancies within the Big4 firms in relation to this moderating effect. Originality/value The results of this study indicate that although the introduction of the KAMs disclosure requirement may have positive consequences, it may also lead to unintended negative consequences. This conclusion has not been comprehensively reported in literature.

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Section: Institutional Background Prior Research and Hypothesis Devel...mentioning

confidence: 97%

Does expanded disclosure in the audit report involve unintended consequences? Evidence from tax avoidance

Baatwah,

Hussainey

2024

IJAIM

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“…They found that the disclosure of KAMs can augment the amount of information available about the company, reduce the frequency of analyst visits, increase the speed and quality of analyst predictions, and reduce delays in stock price responses to improve the information environment. Li and Luo (2023) find that investors can derive incremental information from KAM disclosures, enhancing the informativeness and relevance of audit reports; however, disclosing multiple KAMs can lead to higher fees and delays. Furthermore, disclosing KAMs enhances the usefulness of information on company characteristics and client audit risks (Seebeck & Kaya, 2022).…”

Section: Disclosure Of Kamsmentioning

confidence: 98%

Annual report inquiry letters, disclosure of key audit matters and audit fees: Evidence from Chinese A-share listed companies

Li,

Gou,

Wang

2023

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Research background: Issuing an annual report inquiry letter is a powerful means by which securities exchanges regulate the information of listed companies, which can convey information, reveal risks, and sustain the orderly development of capital markets. However, research on the economic consequences is limited. Purpose of the article: This study analyses the relationships and mechanisms between annual report inquiry letters, key audit matters (KAMs), and audit fees. Methods: We collected data from Chinese A-share companies listed on the Shanghai and Shenzhen Stock Exchanges between 2017 and 2022, totalling 9,903 observations. We used Stata to conduct mediation effects and heterogeneity tests on the data. We also conducted further research on the relationship between audit fees and the purchase of audit opinions. Findings & value added: The results indicate that (1) companies that receive annual report inquiry letters have higher audit fees. Furthermore, (2) companies that receive annual report inquiry letters are more likely to increase the number of disclosed KAMs, leading to higher audit fees. Finally, (3) the above relationship is more significant amongst companies audited by non-Big-Four accounting firms than amongst those audited by Big-Four accounting firms. Further, the increase in audit fees for the sample companies is not due to the purchase of audit opinions and is combined with robustness tests, further validating the conclusions of this study. These findings contribute to research on the economic impact of implementing the annual report inquiry system and new auditing standards, providing empirical evidence for the effectiveness of government oversight of capital markets.

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Does the resignation of an independent director affect audit fees? An empirical study based on Chinese A-share listed companies

Liu,

Li,

Zhang

et al. 2024

International Review of Financial Analysis

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Costs and benefits of auditors' disclosure of critical audit matters: Initial evidence from the United States

Cited by 5 publications

References 45 publications

Does expanded disclosure in the audit report involve unintended consequences? Evidence from tax avoidance

Does expanded disclosure in the audit report involve unintended consequences? Evidence from tax avoidance

Annual report inquiry letters, disclosure of key audit matters and audit fees: Evidence from Chinese A-share listed companies

Does the resignation of an independent director affect audit fees? An empirical study based on Chinese A-share listed companies

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