Auditors' Response to Different Reporting Environments: Experimental Evidence from the Quantity and Quality of Auditors' Evidence Demands in China

17 Pages Posted: 23 May 2020

See all articles by June Cao

June Cao

Macquarie University

Paul Coram

University of Adelaide - Business School; Financial Research Network (FIRN)

Date Written: March 2020

Abstract

There has been a significant worldwide movement to adopt International Financial Reporting Standards (IFRS), which are more principles‐based compared to many of the more rules‐based national accounting standards that they replaced. The majority of previous studies focus on how this financial reporting environment change influences earnings quality, while there has been limited research on how auditors respond to IFRS. We perform an experiment using Chinese professional auditors to test the joint effects of the type of accounting standards and the strength of the financial regulatory regime on both the quantity and quality of auditors' evidence demands. We find that auditors are likely to have more evidence demands and, particularly, more diagnostic evidence demands under principles‐based accounting standards. This influence is more pronounced under the stronger financial regulatory regime. The effect of the institutional environment on IFRS standards is an important international reporting topic particularly for emerging markets like China where there is strong economic growth with an increased focus on reporting standards and regulation. China is an ideal environment to examine this topic because it is the largest country in the world to adopt IFRS, and many Chinese auditors have experienced both rules‐ and principles‐based accounting standards.

Keywords: Audit Evidence, Financial Regulatory Regime, International Financial Reporting Standards, Principles‐Based Standards, Rules‐Based Standards

Suggested Citation

Cao, June and Coram, Paul J., Auditors' Response to Different Reporting Environments: Experimental Evidence from the Quantity and Quality of Auditors' Evidence Demands in China (March 2020). International Journal of Auditing, Vol. 24, Issue 1, pp. 73-89, 2020, Available at SSRN: https://ssrn.com/abstract=3602855 or http://dx.doi.org/10.1111/ijau.12179

June Cao (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Paul J. Coram

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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