Informativeness of the Expanded Audit Report: Evidence from China
59 Pages Posted: 8 Aug 2019 Last revised: 9 Sep 2022
Date Written: September 9, 2022
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: Suggested Citation