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

57 Pages Posted: 31 May 2019

See all articles by Lin Liao

Lin Liao

Southwestern University of Finance & Econ China

Miguel Minutti-Meza

University of Miami - Department of Accounting

Yun Zhang

George Washington University

Youli Zou

University of Connecticut

Date Written: May 20, 2019

Abstract

Effective on December 2016, the Hong Kong Institute of Certified Public Accountants issued a set of new and revised auditing standards that require a discussion of Key Audit Matters (KAMs). We investigate whether KAMs provide incremental information to investors and if the changes to the auditor’s report have indirect consequences for audit fees and audit quality. We implement a difference-in-differences research design, examining two years of data from companies listed in Hong Kong and Mainland China stock exchanges. We do not find evidence that KAMs provide incremental information to investors or that the new rules affect audit fees or quality. Next, we document that variation in the content of KAMs (e.g., types, number, length of the discussion, and company-specific focus) is not consistently associated with incremental information content, audit fees or audit quality. Our findings support some investors’ demands for additional and more specific information in the auditor’s report.

Keywords: Auditor opinions, key audit matters, market reaction, audit fees, audit quality

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 (May 20, 2019). 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

Southwestern University of Finance & Econ China ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China
02887352040 (Phone)

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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