Informativeness of the Expanded Audit Report: Evidence from China

59 Pages Posted: 8 Aug 2019 Last revised: 9 Sep 2022

See all articles by Beng Wee Goh

Beng Wee Goh

Singapore Management University - School of Accountancy

Jimmy Lee

Singapore Management University - School of Accountancy

Dan Li

Tsinghua University - School of Economics and Management

Muzhi Wang

Central University of Finance and Economics (CUFE) - School of Accountancy

Date Written: September 9, 2022

Abstract

This study examines whether key audit matters (KAMs) disclosed in expanded audit reports as a part of recent regulatory reforms are informative to investors in the setting of an emerging economy. 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 are higher and stock price synchronicity is lower during the postadoption period than those during the preadoption period. In additional tests, we find some evidence that KAMs are more informative for nonstate-owned enterprises, smaller firms, and firms that have lower analyst following. Finally, we also find that investors respond to the characteristics of KAM disclosures, providing corroborative evidence that these disclosures are informative. Overall, our study documents systematic evidence that KAMs are incrementally informative to investors in an emerging economy.

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

JEL Classification: M41, M42, M48

Suggested Citation

Goh, Beng Wee and Lee, Jimmy and Li, Dan and Wang, Muzhi, Informativeness of the Expanded Audit Report: Evidence from China (September 9, 2022). 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

Beng Wee Goh (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Jimmy Lee

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore, 178900
Singapore
(65) 6808 5234 (Phone)

Dan Li

Tsinghua University - School of Economics and Management ( email )

Beijing, 100084
China

Muzhi Wang

Central University of Finance and Economics (CUFE) - School of Accountancy ( email )

Beijing
China

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