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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. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this study is to investigate the decision usefulness of key audit matters (KAMs) disclosures from the perspective of financial analysts. Design/methodology/approach: Using data from two groups of Chinese-listed firms subject to different audit standards, the authors use a quasi-natural experiment and the difference-in-differences approach to examine the impact of KAMs on analyst forecasts. The authors also conduct a textual analysis on management disclosures as well as on the content of KAM disclosures. Findings: The results of this study show that both forecast errors and dispersion have significantly declined for the firms disclosing KAMs compared to the firms without such disclosures. Further analysis presents evidence that KAM disclosures have resulted in simultaneous increase in management disclosures and audit quality. In addition, auditor characteristics, such as auditor's dependence on client fees and its industry specialization, and firm's characteristics, such as its ownership structure and its social connection with the auditor, appear to affect the informativeness of KAM disclosures. The authors also perform content analysis of KAMs to provide additional insight. Research limitations/implications: As AH firms are required to adopt the expanded audit report one year before A shares firms, by design, there is only one year in which these two types of companies differ. Therefore, the results without overgeneralizing the impact of KAM disclosures should be interpreted. In addition, this study involves the Chinese market alone and, therefore, may be affected by factors peculiar to the functioning of the Chinese economy and financial markets. Originality/value: The main contribution of this study lies in highlighting the salience of KAM context in shaping the relationship between auditors, managers and analysts and its collective impact on information environment. The findings of this study are significant in that they help establish the importance of KAM disclosures in helping to assure that higher quality financial information is available to capital markets, as well as information that is otherwise unavailable given disclosure mandates in China. This study adds to the literature on the importance of providing additional means of safeguarding auditor independence and on the value of auditor expertise in providing useful content in audit disclosures. Moreover, the findings suggest that the expanded audit report can help reduce the level of asymmetric information, especially for state-owned entities. They provide insight on how the new audit rule influences managers and auditors communicating complex accounting matters as well as the moderating effect of the social connections between auditors and firm executives. [ABSTRACT FROM AUTHOR]

Purpose: This study examines the effect of audit quality on earnings management to beat earnings targets among Chinese listed firms, taking into account the firms' corporate social responsibility (CSR) practice. Design/methodology/approach: The sample consists of all A-shares listed in the Chinese stock market from 2001 to 2019, except firms in the financial industry. Probit estimator is employed to observe the effect of audit quality, proxied by a binary variable indicating whether a firm is audited by a Big 4 audit firm, on the behavior of earnings management to beat earnings targets. Industry and year fixed effects are incorporated into the models to control for differences among industries and time periods. Findings: The result of this study reveals that audit quality disciplines earnings management to beat earnings targets in Chinese firms. This result holds across different specification and endogeneity tests. The authors further find that auditors seem to be more tolerant to earnings-managed firms that actively disclose CSR activities. However, this moderating effect of CSR disclosure only exists among firms that manage earnings less aggressively. Practical implications: The findings of this study suggest that market participants should be mindful of the earnings management phenomenon and make their investment decisions after carefully dissecting and confirming the truthfulness of firms' financial reporting. Regulators should raise the requirement on the capacity of auditing services to ensure the quality of the audit outcome. Originality/value: This study is the first to investigate the effect of audit quality on earnings management to beat earnings targets in Chinese firms. Moreover, this study pioneers in observing the moderating effect of CSR disclosure on the relationship between audit quality and earnings management. [ABSTRACT FROM AUTHOR]

Purpose: In an effort to make audit reports more informative to users, the Public Company Accounting Oversight Board and the International Auditing and Assurance Standards Board adopted a standard that requires auditors to disclose key audit matters (KAMs). This paper aims to explore the impact of the risk information provided by KAMs on corporate debt contracting. Design/methodology/approach: In China, the KAM standard went into effect for A + H cross-listing companies in 2017 and became mandatory for all listed companies in 2018. This study takes this as an exogenous shock to examine the impact of the KAM disclosures on debt contracting. This study also designs a path analysis to open the "black box" between the risk information in KAMs and the risk perception of creditors. Moreover, This study conducts a textual analysis on the KAMs information based on samples after the release of the KAM standard. Findings: This study conducts difference-in-difference tests and find that the KAM disclosures decrease interest rates and increase the proportion of long-term debt. Path analyses reveal that the KAM disclosures lead to more favorable debt characteristics through decreasing information asymmetry. This study also finds that the more KAMs are disclosed, the more favorable debt characteristics are and that different categories of KAMs have different effects on debt contracting. Originality/value: This paper highlights the benefits of KAM disclosures, which are consistent with the convergence argument of risk information disclosures. Investors' reactions to KAMs are mixed because of the differences in how professional investors and nonprofessional investors interpret information. This study provides evidence of incrementally informative nature of KAMs from the perspective of debt holders, who are professional information users. [ABSTRACT FROM AUTHOR]

In China, a mandatory dual audit system for domestic A-share firms cross-listed on the Hong Kong stock market (i.e. AH companies) was abolished in 2010. Since then, AH companies have been allowed to choose to have a dual audit or a single audit. We find that the mandatory dual audit regime before the deregulation is associated with a lower cost of equity than voluntary dual audit after the deregulation. Furthermore, the lower cost of equity under the mandatory dual audit regime is greater in companies exposed to stronger financial constraints and with higher agency costs, and is not attenuated by alternative voluntary audits. Our results are not affected by accounting standards convergence and audit quality, and are robust to various model specifications. Our results suggest that the role of mandatory dual audit in mitigating agency costs and information asymmetry is not replaceable by voluntary dual audit. [ABSTRACT FROM AUTHOR]

The threading dislocations (TDs) in GaAs/Si epitaxial layers due to the lattice mismatch seriously degrade the performance of the lasers grown on silicon. The insertion of InAs quantum dots (QDs) acting as dislocation filters is a pretty good alternative to solving this problem. In this paper, a finite element method (FEM) is proposed to calculate the critical condition for InAs/GaAs QDs bending TDs into interfacial misfit dislocations (MDs). Making a comparison of elastic strain energy between the two isolated systems, a reasonable result is obtained. The effect of the cap layer thickness and the base width of QDs on TD bending are studied, and the results show that the bending area ratio of single QD (the bending area divided by the area of the QD base) is evidently affected by the two factors. Moreover, we present a method to evaluate the bending capability of single-layer QDs and multi-layer QDs. For the QD with 24-nm base width and 5-nm cap layer thickness, taking the QD density of 1011 cmâˆ'2 into account, the bending area ratio of single-layer QDs (the area of bending TD divided by the area of QD layer) is about 38.71%. With inserting five-layer InAs QDs, the TD density decreases by 91.35%. The results offer the guidelines for designing the QD dislocation filters and provide an important step towards realizing the photonic integration circuits on silicon. [ABSTRACT FROM AUTHOR]

Purpose: This paper addresses the role of principles-based accounting standards as a potential mechanism for reducing firms' time delay of annual reporting disclosure while improving the timeliness of accounting information. The paper also contributes to the existing literature by addressing the mediating effects of the financial reporting complexity and the audit workload on the link between principles-based accounting standards and the time delay of annual reporting disclosure. Design/methodology/approach: The focus is placed on an unbalanced panel of 20,943 samples over the period of 2007–2017. Findings: The results show that the more principles-based the accounting standards are, the lower the time delay of annual reporting disclosure is, and the timelier the disclosure of accounting information is. The relationship between the two is more significant especially in the first two months after the end of the fiscal year. The findings are all robust after controlling for a series of sensitivity checks and endogenous concerns. From the mediating effect results, the authors find that principles-based accounting standards decrease the financial reporting complexity and the audit workload which in turn can help lower time delay of annual reporting disclosure. In addition, the negative effect of principles-based accounting standards on the time delay of annual reporting disclosure is more significant in the case that the company has "good news" including with no losses and receiving the standard auditing opinions. The results confirm the law of "good news announces early, bad news announces late." Furthermore, the moderating effect results show that the higher the economic policy uncertainty index and the legal environment index, the lower the benefit of principles-based accounting standards to the timeliness of annual reports. The results of the economic consequences of timeliness suggest that the timely disclosure of accounting reporting will bring greater market reaction and contain more information, and the information of companies that disclose annual reports timely are more transparent. Originality/value: This paper studies the impact of accounting standards on the timeliness of annual report disclosure, which enriches the literature in the field of macro policies and micro-enterprise behaviors. [ABSTRACT FROM AUTHOR]

This paper examines the practical use of The Audit Risk Model (ARM) in Enterprise Resources Planning (ERP) settings. International Auditing Standards (IAS) suggest that auditors of financial statements rely on the ARM to plan audit engagements. Sixty practicing auditors (30 from Canada and 30 from China) performed risk assessments on Audit Risk (AR), Inherent Risk (IR) and Control Risk (CR) in light of identical case materials. Our findings suggest that there is no significant difference between Canadian and Chinese auditors when interpreting similar data to establish their risk assessments. Nevertheless, the information regarding ERP caused the biggest discrepancy both between and within the two groups. [ABSTRACT FROM AUTHOR]

Based on gaining privileged access to interview senior representatives of audit firms, regulatory bodies, financial institutions, universities and other organisations in mainland China, Hong Kong and the UK, this exploratory study presents a range of informed views about the rapid development of China's auditing profession over the last 25 years. It explores the emerging roles of the firms in the 2nd-tier international networks and among the larger stand-alone firms as challengers to the Big 4, nationally and internationally. It identifies national and international institutional interactions that have shaped and are being shaped by this rapid growth, with particular reference to the overarching role of the State's shifting strategies to create a domestic profession in China that can compete internationally. The potential consequences, given China's unequalled size and its expanding global influence, could change the nature and structure of the global profession. A significant contribution of this exploratory empirical study has been to deconstruct the continuing conventional political and academic rhetoric that dichotomises firms into 'foreign vs local' and 'Big 4 vs other'. It contributes new voices and alternative perspectives to the emerging literature on the glocalization of large professional services firms and suggests new opportunities for future auditing research. [ABSTRACT FROM AUTHOR]

As more countries consider the adoption of International Financial Reporting Standards (IFRS) that are based on practices prevalent in the English-speaking countries with free markets, it’s increasingly important to understand the impact of IFRS on countries of different institutional, economic, and political environments. This article reports a study that examines the impact of IFRS on accounting quality in a regulated market, China, where new substantially IFRS-convergent accounting standards became mandatory for listed firms in 2007. Accounting quality is examined for the period 2005 to 2008 with only firms mandated to follow the new standards. The empirical results generally indicate that accounting quality improved with decreased earnings management and increased value relevance of accounting measures in China since 2007. Firms audited by the Big Four are expected to have higher quality before the standard change evidenced quality improvement to a smaller extent. Further analysis shows that such changes are less likely to result from changes in economic conditions but from the changes of the standards. Through the analysis of China’s adoption of the new substantially IFRS-convergent standards, the study provides direct evidence on the question of whether IFRS can be relevant to markets that are still disciplined mainly by regulators rather than by market mechanisms. [ABSTRACT FROM PUBLISHER]

SUMMARY: Using data from the Chinese market where related party transactions (RPTs) are particularly prevalent, we examine how the independent auditor responds to the potentially heightened risk of RPTs and the efficacy of the auditor's response. First, we find that the auditor is more likely to issue a modified audit opinion that specifically discusses RPTs (RPTMAO) to firms reporting higher related sales or related lending, but not to firms reporting higher RPTs of other categories (i.e., related purchases, related borrowing, and related assets/equity transactions). These findings suggest that the auditor alerts investors to the possibility of earnings management and/or expropriation risk from related sales or related lending through audit opinions. The positive relation between related sales and RPTMAO is driven by related sales with nonmarket-based or undisclosed pricing policy and related sales above the industry average. Second, RPTMAO has robust predictive power for future RPT-related restatements, and the predictive power is greater than that of modified opinions that do not specifically discuss RPTs, suggesting that the auditor is effective at communicating the risk associated with RPTs through opinion modifications, especially RPTMAOs. JEL Classifications: M49 Data Availability: Data used in this study are available from public sources. [ABSTRACT FROM AUTHOR]

Purpose – From 2000 to 2007, 14 Chinese accounting firms had their audit licenses terminated or suspended for different reasons, forcing clients of these accounting firms to select new auditors within a short period of time. The purpose of this paper is to examine the auditor switching patterns and audit partner following decision of these clients and the effect of both client and (terminated or suspended) auditor characteristics on the auditor change decisions. Design/methodology/approach – By using 245 (191) clients of terminated or suspended audit firms, the authors apply logistic regressions to investigate clients’ switching decision (following decision). Findings – The empirical results indicate that state-owned enterprises tend not to switch to Big 4 audit firms; clients with dual shares tend to choose from the Big 4 for their succeeding audit firms. Moreover, companies whose preceding auditors received severe regulatory sanctions are less likely to switch to auditors of higher quality; companies who hired local auditors are more likely to follow their preceding audit partners as a result of forced auditor change. Originality/value – This study enriches forced auditor change literature by discussing both clients’ and preceding auditor’s attributes on clients’ switching and following decisions. [ABSTRACT FROM AUTHOR]

Purpose – The aim of this study is to examine the relations among organizational ethical climate, goal interdependence (cooperative vs competitive goals), and organizational and professional commitment among auditors in Asia. Design/methodology/approach – The authors conducted a field survey of 293 auditors employed in two offices of an international accounting firm: one in Hong Kong and one in Singapore. Findings – Structural equation analyses indicate that instrumental ethical climates that focus on the pursuit of self-interest and firm profitability promote more competitive and less cooperative goals among auditors. Benevolent/cosmopolitan (public interest) climates appear to enhance cooperative goals among employees. Cooperative goals in turn were associated with increased affective and normative organizational and professional commitments. Competitive environments significantly reduced affective and normative organizational commitment as well as affective professional commitment. Compared with their Hong Kong counterparts, Singaporean auditors perceived the ethical climate in their firm to be more positive or supportive of ethical values, and also felt the work environment in the firm was more cooperative and less competitive. In addition, the Singaporean auditors exhibited somewhat higher levels of emotional attachment to both their firm and the public accounting profession. Originality/value – No prior accounting study has examined the influence of cooperative/competitive goals on work outcomes in a public accounting setting, or the role of ethical climates as potential antecedents of such goals. The results of the current study indicate that the development of cooperative and competitive goals is significantly related to the perceived ethical climate in public accounting firms, and that such goals may have significant effects on employee commitment not only to their organization but also to their profession. The significant differences between auditors in Hong Kong and Singapore have not previously been documented, and raise questions for future research. [ABSTRACT FROM AUTHOR]

The article discusses the basic auditing concept of materiality introduced by the China National Audit Office into Chinese government auditing in 2001. It defines materiality as the magnitude of an omission or misstatement of information in an auditees' financial statements that can influence the judgment and decision of financial statement users. It indicates that materiality models developed for corporate audit practice may not be suitable within the context of government audit.

Internationalization of Accounting Standards refers that the economic consequences of accounting standards have an impact on the distribution of benefits between the economic consequences, mainly as a country in the process of internationalization of the benefits and costs. The benefits of international accounting standards in China represent as in order to reduce financing costs mainly to attract foreign investment and promote export trade, the costs of international accounting standards, mainly for the development costs and changes in the cost. To maximize the interests, we should weigh the economic consequences of repeated, and actively promote the international equivalent of China's accounting standards, and enhance China's international voice and efforts to build and improve our system of accounting standards. [ABSTRACT FROM AUTHOR]

This study examines how the legal and regulatory changes in China affect the relationship between client economic importance and audit quality. At the individual auditor level, we find that the propensity to issue modified audit opinions (MAOs) is negatively correlated with client importance from 1995 to 2000. However, from 2001 to 2004, when the institutional environment became more investor-friendly, the propensity to issue MAOs is positively associated with client importance. These findings are corroborated by an analysis of regulatory sanctions. Although client importance measured at the office level is also negatively related to the propensity for MAOs from 1995 to 2000 without controlling for the auditor-level client importance, this result is sensitive to model specification and sample composition. Our results suggest that (1) institutional improvements prompt auditors to prioritize the costs of compromising quality over the economic benefits gained from important clients; and (2) the impact of client importance on audit decisions appears to be different at the individual auditor and office levels. [ABSTRACT FROM AUTHOR]

This study seeks insights into determinants of Chinese audit firms' ability to ensure high quality financial reporting. Its scope of investigation encompasses the extent to which Chinese audit firms employ structured audit processes, their evaluation of potential clients, factors that impact their risk assessment, and the stringency of the reporting standards that they seek to impose on clients. The factors investigated include ones suggested as being important by extant research, as well as unique characteristics of the Chinese setting (e.g., the importance of interpersonal relationships [‘guanxi’] and most listed companies' origins as state-owned enterprises). Structured interviews and questionnaire surveys are used to solicit quantitative and open-ended responses from 102 Chinese auditors at the partner, manager, and senior levels of Big 4 affiliates and local public accounting firms. [ABSTRACT FROM AUTHOR]

The audit‘expectation gap’ is a crucial issue associated with the independent auditing function and has significant implications on the development of auditing standards and practices. Through a questionnaire survey, this study investigated the rise of‘expectation gap’ and related auditing issues under business and auditing environment in the People's Republic of China. The results reveal that the role and benefits of public accounting (independent auditing) had been positively recognized by Chinese audit beneficiaries and auditors, and there were increasing demands for expanding the applicability of public accounting. This study obtained substantial evidence on the emergence of audit‘expectation gap’ in China, with respect to audit objectives, auditor's obligation to detect and report fraud, auditor independence, and third party liability of auditors. The causes and practical implications of the‘expectation gap’ are therefore analyzed contextual to the present practices of public accounting in changing Chinese social and economic conditions. This study should cast light on understanding of the institutional setting and recent development of independent audits in China. [ABSTRACT FROM AUTHOR]

Provides an insight into the evolution of independent auditing standards in China. Historical and institutional background of Chinese auditing standards; Various Chinese attempts at setting auditing standards; Factors that motivated auditing standard setting.

Public accountancy in Hong Kong may be divided into three major parts, auditing, taxation and costing. Costing is a special feature of public accountancy in Hong Kong. It is associated with exports under the Commonwealth Preference scheme. Auditing in Hong Kong may be either compulsory or voluntary. The proper title of a public accountant engaged in company auditing is the "authorized auditor," an official list is kept by the companies' registry and published yearly in the government's December gazette. The official accounting body in Hong Kong is the Authorized Auditors Board. The application of statistical techniques, sampling, probability control, etc., to auditing has not received enough attention, but the popular method of direct confirmation used in the United States is also widely accepted in Hong Kong. Income tax supplies the largest portion of the total Hong Kong revenue, although the rate is quite low. The standard rate of tax is now 12.5%, a rate unchanged since 1951. Profits tax is charged on every individual, partnership or corporation carrying on business in Hong Kong.

The article discusses themes of the second general plenary session of the XXI International Congress of Supreme Audit Institutions (INCOSAI) held in Beijing China in 2013. It is stated that themes for discussion were "National Audit and National Governance" and "The Role of SAIs in Safeguarding Long-Term Sustainability of Finance Policies."

Information about the topics discussed during the second meeting of the Working Group on Key National Indicators which was held in Beijing, China from April 21-22, 2009 is presented. Topics include the working plan of the group for 2009-2010 and the concept mechanism for developing national indicators system. The meeting was attended by 34 participants from 16 Supreme Audit Institutions (SAIs) and was hosted by China's National Audit Office (CNAO).

The article offers information on the guidance document titled "Recommendations on Strengthening Resource and Environmental Auditing" published by the China National Audit Office (CNAO) to strengthen the resource and environmental auditing policy in the country. It notes that the document offers the guiding principles, key tasks, and goals of natural resource and environmental auditing. It recommends to strengthen the audit teams in the country for environmental auditing and capacity building.

The article offers information about the new publication process for International Standards of Supreme Audit Institutions (ISSAI) and International Organization of Supreme Audit Institutions Guidance for Good Governance (INTOSAI GOV). The new process was adopted by the delegates at the October 2008 Professional Standards Committee (PSC) steering committee meeting held in Beijing, China. The features of the new process include the approval of only the PSC steering committee on exposure drafts, the new point of access for exposure drafts is the site, www.issai.org, and the requirement for subcommittees and projects to forward to the PSC Secretariat.

The article reports that the National Audit Office of China (CNAO) has published the first manual on auditing the budget implementation of governmental departments in China on November 2007. The manual aimed to highlight the experiences of the CNAO in auditing central government departments' budget implementation and in promoting the legalization and standardization of audits. The subjects of the manual's 15 chapters include audit organization and preparation, audits of project expenditure and audits of procurement.

The article announces and discusses the newly-amended National Auditing Standard of the People's Republic of China that was signed by Auditor General of China Liu Jiayi on September 1, 2010 and went into effect on January 1, 2011.