Consequences of the Adoption of the Expanded Auditor’s Report: Evidence from Hong Kong

University of Miami Business School Research Paper No. 3392449

74 Pages Posted: 31 May 2019 Last revised: 15 Jun 2022

See all articles by Lin Liao

Lin Liao

Nanjing Audit Univeristy

Miguel Minutti-Meza

University of Miami - Department of Accounting

Yun Zhang

George Washington University

Youli Zou

University of Connecticut

Date Written: June 1, 2022

Abstract

We examine the adoption of the IAASB expanded audit report standards in Hong Kong and Mainland China in December 2016 and 2017, respectively. These jurisdictions combined represent one of the largest economies that has mandated expanded reports in a staggered fashion. This setting offers rich data that can help us to overcome some shortcomings of earlier studies, which document inconclusive and limited causal inferences about the consequences of expanded reports. We do not find compelling evidence that expanded reports, and specifically Key Audit Maters (KAMs), have provided incremental information to investors or improved audit quality. Next, several cross-sectional tests based on variations in companies’ information environment and KAMs’ characteristics confirm the conclusions of our main analyses. Our evidence supports some stakeholders’ concerns that expanded reports provide little company-specific or value-relevant information. Auditors still have an unrealized potential to provide useful information in expanded reports.

Keywords: Key audit matters, market reaction, audit quality, Hong Kong; Mainland China

Suggested Citation

Liao, Lin and Minutti-Meza, Miguel and Zhang, Yun and Zou, Youli, Consequences of the Adoption of the Expanded Auditor’s Report: Evidence from Hong Kong (June 1, 2022). University of Miami Business School Research Paper No. 3392449, Available at SSRN: https://ssrn.com/abstract=3392449 or http://dx.doi.org/10.2139/ssrn.3392449

Lin Liao

Nanjing Audit Univeristy ( email )

86 Yushan W Rd
Nanjing, Jiangsu 210017
China

Miguel Minutti-Meza (Contact Author)

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States
305-284-6287 (Phone)

Yun Zhang

George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

Youli Zou

University of Connecticut ( email )

School of Business
Storrs, CT 06269-2041
United States

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