Informativeness of the Expanded Audit Report: Evidence from China

This study examines whether the key audit matters (KAMs) disclosed in expanded audit reports as a part of recent regulatory reforms are informative for investors in an emerging economy setting. Using the recent adoption of expanded audit reports for firms listed exclusively in Mainland China, we find robust evidence that the abnormal trading volume and earnings response coefficients (ERCs) are higher and that stock price synchronicity is lower during the postadoption period than during the preadoption period. In additional tests, we find some evidence that KAMs are more informative for non-state-owned enterprises (non-SOEs), smaller firms, and firms that have a smaller analyst following. Finally, we also find that investors respond to the characteristics of KAM disclosures, providing corroborative evidence of the informativeness of these disclosures. Overall, our study provides systematic evidence that KAMs are incrementally informative for investors in an emerging economy.

Keywords: expanded audit report, information content, key audit matters

JEL Classification: M41, M42, M48

Suggested Citation: Suggested Citation

Goh, Beng Wee and Lee, Jimmy and Li, Dan and Wang, Muzhi, Informativeness of the Expanded Audit Report: Evidence from China (June 28, 2023). Singapore Management University School of Accountancy Research Paper No. 2019-104, Available at SSRN: https://ssrn.com/abstract=3432107 or http://dx.doi.org/10.2139/ssrn.3432107