Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom

Reid, Lauren C.; Carcello, Joseph V.; Li, Chan; Neal, Terry L.; Francis, Jere R.

doi:10.1111/1911-3846.12486

Cited by 223 publications

(336 citation statements)

References 58 publications

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“…In addition to the research on whether the audit report reform or key audit matters can bring incremental information value, there are also research and Analysis on the impact of disclosure of key audit matters or audit report reform on audit quality and audit cost. Reid et al (2019) takes the reform of audit report in the UK as the background, and proves that the reform of audit report improves the quality of financial report, but does not cause the increase of audit cost, and affirms the significance of the reform of audit report. However, Gutierrez et al (2018) believe that disclosure of risks alone will not lead to the improvement of audit quality or audit fees, but this conclusion may be because the long-term impact of audit report changes has not been captured.…”

Section: Literature Review On Key Audit Mattersmentioning

confidence: 80%

Research on Disclosure Status and Influencing Factors of Key Audit Matters

Shao¹

2020

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In 2016, China made new regulations on audit report. The core change is that key audit matters are added to the audit report. Since then, key audit matters have become a new hotspot in the field of audit research. This paper mainly studies the disclosure status of key audit matters in China and the factors affecting the disclosure. This paper will quantify the characteristics of key audit matters and study its impact on the disclosure of key audit matters from the two levels of firm and auditor. This article uses data from listed companies that have disclosed key audit matters from 2016 to 2018, and uses mean testing and regression research methods to analyze how the characteristics of firms and auditors will affect the disclosure of key audit matters. The study found that: 1) the number of key audit matters, the length of the text, the length and proportion of digital figures, and industry-specific key audit matters fluctuated significantly from 2016 to 2017 and stabilized from 2017 to 2018; 2) The size of the firm, the audit term, the firm's industry expertise, and the auditor's gender, years of practice, and industry expertise will significantly affect the disclosure of key audit matters. This article provides evidence that the characteristics of firms and auditors affect the disclosure of key audit matters and expands research on key audit matters.

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Section: Literature Review On Key Audit Mattersmentioning

confidence: 80%

Research on Disclosure Status and Influencing Factors of Key Audit Matters

Shao¹

2020

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“…The possible reason is that the disclosure of key audit matters is gradually compulsory, which will not lead to the increase of audit fees. Reid et al (2019) took advantage of recent changes in UK audit reports and found no empirical evidence of significant changes in audit quality or audit costs when implementing the new reporting system.…”

Section: The Impact On Auditorsmentioning

confidence: 99%

“…The empirical findings are not found in the implementation of the new reporting system. There is empirical evidence of major changes in audit quality (Reid et al, 2019).…”

Section: The Impact On Auditorsmentioning

confidence: 99%

A Study of Key Audit Matters Disclosure

Li¹

2020

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With the continuous development of the capital market, the quality requirements for the audit reports of listed companies are becoming stricter and stricter. On December 23, 2016, China officially released the auditing standards of China certified public accountants no.1504-communicating key audit matters in audit reports. Listed companies listed on A + H shares implemented the new standards in their financial reports from January 1, 2017, and fully implemented standard 1504 from January 1, 2018. Under the new standards, the audit reports of listed companies disclose the key audit matters that have significant impact during the current audit process. This paper studies the format, content and quantity of disclosure of key audit matters, and analyzes the disclosure of key audit matters of China's A-share listed companies from 2016 to 2018 and summarizes the impact of disclosure of key audit matters from three aspects: users of financial reports, auditors and the audited entity.

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“…Whereas some archival and survey studies have investigated the impact of KAMs on the information content of expanded audit reports (Boolaky & Quick, 2016;Guttierez, Minutti-Meza, Tatum, & Vulcheva, 2018;Lennox, Schmidt, & Thompson, 2018;Reid, Carcello, Li, & Neal, 2018) and on auditor liability (for a review, see Gimbar, Hansen, & Ozlanski, 2016), only a few studies have analyzed the impact of the new auditor reporting requirement on the process of the audit itself -for exceptions, see Fuller (2015) and Cade and Hodge (2014); and for a comprehensive review of the current research, see Bédard, Coram, Espahbodi, and Mock (2016).…”

mentioning

confidence: 99%

Real effects of reporting key audit matters on auditors' judgment and choice of action

Asbahr

Ruhnke

2019

Int J Auditing

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This experimental study analyzes whether reporting an accounting estimate as a key audit matter (KAM) can influence auditor judgment about the accounting estimate and the corresponding action. We find that skeptical action in the form of proposed adjustment amounts is significantly lower when the accounting estimate is reported as a KAM. Thus, the disclosure of a KAM can serve as a moral license to waive an adjustment. Taking into account that the KAM disclosure does not affect auditors' skeptical judgments in the form of a reasonableness assessment of the accounting estimate, our results indicate the existence of a judgment–action gap. Furthermore, implicit client pressure does not enlarge the moral licensing effect of the KAM disclosure. We also find evidence that audit effort is not affected by reporting a KAM. Overall, our study contributes to the current debate about the audit reporting model by showing that reporting a KAM might have unintended “real effects” on auditors' actions.

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Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom

Cited by 223 publications

References 58 publications

Research on Disclosure Status and Influencing Factors of Key Audit Matters

Research on Disclosure Status and Influencing Factors of Key Audit Matters

A Study of Key Audit Matters Disclosure

Real effects of reporting key audit matters on auditors' judgment and choice of action

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