Audit-firm serving experience heterogeneity and audit knowledge integration:Evidence from the disclosure of key audit matters

Audit practice is a team effort led by signing auditors.We examine the impact of the heterogeneity of signing auditors’audit-firm serving experiences on the disclosure of key audit matters(KAMs).Auditors with more heterogeneous serving experiences demonstrate more adequate KAM disclosure,as evidenced by more KAMs,longer texts and clearer attributions in their disclosures.This effect is influenced by the quality of audit knowledge that auditors accumulate from different serving experiences and the team-and audit-firm-level knowledge integration environment.Furthermore,signing auditors with more diverse service experience tend to improve audit quality,reduce the incidence of restatement or misconduct and enhance the informativeness of financial reports.Our findings enrich the KAM disclosure research and provide insights into audit firms’human resource allocation and internal management.

How do board features and auditor characteristics shape key audit matters disclosures?Evidence from emerging economies

This study examines how corporate board features and auditor characteristics in Bangladesh influence the disclosure of key audit matters(KAM)in annual reports from 2018 to 2021.Using ordinary least squares(OLS)regressions,the study finds that factors such as chair gender,the presence of women on the board,audit committee(AC)size,auditor tenure,and client-auditor relationship significantly affect KAM disclosure.However,AC expertise,family CEO succession,and board political connections do not have significant effects.Notably,having a family member CEO with a long-tenured auditor has a negative association with KAM disclosure,while a politically connected family CEO has a positive association with such disclosures.Additionally,Big-4 auditors of important clients are negatively associated with KAM disclosure.

Critical audit matters and stock price crash risk

Using manually collected data on the number and category of critical audit matters(CAMs)in the period 2016–2017,we investigate the hitherto unexplored questions of whether CAMs affect firm-specific crash risk,how CAMs influence crash risk in the Chinese capital market,and recognize CAMs that contain incremental information.Our findings are as follows:(1)Crash risk decreases after implementing the new audit standard requiring the disclosure of CAMs;(2)CAMs release negative information and change the capital market information environment;(3)only corporateidiosyncratic CAMs contain incremental information;(4)crash risk is mitigated only by CAMs disclosed by companies with a high shareholding of institutional investors.The main conclusion of our study is a positive assessment of the new audit standard and of CAMs in terms of protecting the interests of investors and strengthening the stability of the capital market to provide a new perspective for supervising the implementation of the new audit standard.

Disclosure of Critical Audit Matters,Audit Risk and Audit Opinion

We explore the association between the number of critical audit matters and auditing opinion based on the Chinese capital market data.In addition,we investigate the effect of audit risk on the relationship between the number of critical audit matters and auditing opinion.Using 6,662 firm-year observations listed in the Chinese capital market from 2017–2019,we find that the number of critical audit matters has significantly positive association with clear audit opinion.Specially,the greater the number of critical audit matters,the more likely getting clear audit opinion.We also find that the audit risk restricts the effect of the critical audit matters on the audit opinion.Lastly,we find that Big4 accounting firms are less likely to be influenced by the number of critical audit matters;the audit complexity restricts the effect of the critical audit matters on the audit opinion;the more board members,the less effect of the number of critical audit matters on the audit opinion.We also use several robustness tests to strengthen the conclusion.Our research may contribute to the understanding of the new audit standard.

Audit Reports of Financially Distressed Companies： Emphasis of Matter （EOM） Versus Disclaimers

This paper examines audit reports issued to 39 Malaysian listed companies in financial distress categorized as Practice Note 17 （PNI7） companies by Bursa Malaysia. The study finds that for companies which experienced financial distress, the audit reports are not similar, despite all companies are similarly troubled financially. Companies receive either a disclaimer or an emphasis of matter （EOM） report. The study finds that which of the two reports is given is associated with three variables： current-year operating loss, shareholders＇ deficit, and default status, implying that audit reports do convey information that financial distress is not of the same level and severity among PN 17 companies.