Seminar (Dept. of Finance)

Title ：How Does Key Audit Matter Disclosure Enhance Audit Reports’ Communicative Value? Evidence from the Chinese Market

Speaker ：Jin qinglu, Professor, Shanghai University of Finance and Economics

Time：9:30-- 11:00, Oct.21, 2022 (Friday)

Venue：Online Meeting

Language ：Chinese&English

ABSTRACT:

From audit reporting practices in China, we find that key audit matter (KAM) disclosure enhances audit reports’ communicative value, leading to higher market valuations and lower cost of capital. These effects stem from auditors’ key observations on KAMs provided in audit reports (a more discretionary part) rather than the number of KAMs or the extensiveness of related audit procedures (the mandatory parts). Provision of key observations is more commonly seen for firms with strong motivation to reduce information asymmetries but limited means to do so (proxied by firms facing tight financial constraints and having low analyst following). Further examination uncovers that the documented phenomenon is particularly salient for firms with substantial financing need (high growth, high financial risk, located in regions with low financial market development, private vs. state ownership) and those surrounded with high uncertainty. Evidence on linguistic features in audit report text—another discretionary aspect—lends further support.