Research On Incremental Information And Decision Usefulness Of Key Auditing Matters From The Perspective Of Investors

The certified public accounting system is an important intermediary system in the market economy system,which plays an important role in maintaining the order of capital commodity transactions in the capital market.The audit report is an important information medium for the communication between the participants of the CPA audit system,and also an important basis for investors to make decisions.With the evolution of the certified public accounting system,the audit report has gradually developed into a standardized mode.However,since entering the 21 st century,the traditional standardized audit report has been challenged by the impact of the financial crisis.In order to meet the increasing needs of users for the information content and decision-making usefulness of the audit report,the relevant institutions at home and abroad have carried out the reform of the audit report,in which communicating key audit matters(KAM)in the audit report is a core content.The promulgation and implementation of key audit matters standards aims to increase the communication value of the audit report by improving the transparency of the executed audit work,and improve the decision usefulness of the audit report by providing the expected users of the financial statements with incremental information other than audit opinions.Among the expected users of the audit report,investors are the most direct and important service objects of the audit report.Therefore,it is of great research value to study how the key audit matters transmit information to investors and whether the information transmitted by the key audit matters has an effect on the decision-making of investors.Therefore,based on the evolution of audit reports and the status quo of the implementation of key audit matters standards,combined with the development characteristics of China's capital market,this paper studies the incremental information content and decision-making usefulness of key audit matters based on audit opinions from the perspective of investors.Since the implementation of the key audit matters standard in China,there is still a lack of dynamic analysis of the current implementation situation of key audit matters in the existing research,and there is no distinction between the information content and audit opinions.It is difficult to know whether the impact of key audit matters on investors' decision-making is the same or different based on different types of audit opinions.In terms of theoretical research,there is no comprehensive theoretical system to explain how KAM can realize the incremental value of information and the usefulness of decision-making on the basis of audit opinions.In view of the shortcomings of the existing literature research,this paper constructs a theoretical analysis framework based on the perspective of investors,which has incremental information and decision-making usefulness on the basis of audit opinions,and conducts empirical tests to explore its specific implementation mechanism.In terms of research context,first of all,this paper summarizes the existing literature from the aspects of reform needs,disclosure content and implementation effect of key audit matters,clarifies the achievements and shortcomings of existing research,and finds the breakthrough of research;Secondly,this papers analysis how KAM forms based on the history of audit report reformation,and shows the state of art implementation situation of KAM standatds in 2016-2018;Thirdly,based on the theory of Marx's capital goods,signaling theory and institutional economics theory,this paper makes a theoretical analysis of the mechanism of the incremental information and the usefulness of investors' decision-making on the basis of audit opinions,forms a logical framework according to the theoretical framework and implementation status,put forward research hypotheses;Fourthly,empirically test the incremental risk disclosure information and decision-making usefulness of KAM based on different audit opinions with data from 2017-2018 in Chinese capital market,and form a specific mechanism to realize the incremental information value and decision-making usefulness of KAMs based on the perspective of investors.Meantime,The endogeneity and robustness were tested;Finally,according to the conclusions of the study,this papers offers policy recommendations and proposals for future research according to the shortcomings and limitations of this study.The main conclusions of this study are as follows:(1)Investors need two-fold risk information of financial information quality risk and going concern risk when making decisions.Based on the perspective of investors,this paper analyzes the information demand of investors' decision-making according to Marx's capital goods theory.The audit demand of investors is determined by the nature and pricing mechanism of capital goods.The value of capital goods is not entirely determined by the existing value,but by the future value.Therefore,investors have a dual demand for CPA audit report information when making decisions.On the one hand,investors need auditors to ensure the fairness and reliability of historical accounting information,fully disclose the quality risk of financial information,on the other hand,investors need to determine the safety of investment and the availability of future earnings,and fully understand the potential going concern risk of enterprises.At the same time,investors need to understand the relevant risk level,so as to further screen companies with the same audit opinion,further optimize the investment strategy and improve the investment income.Based on the motivation of investors,this paper discusses the shortcomings of the traditional audit report and the specific mechanism to realize the incremental information value of key audit matters,which lays a theoretical foundation for further analysis of the information increment and decision usefulness of key audit matters.(2)The incremental risk disclosure information of key audit matters is different in different audit opinions.In the standard unqualified audit opinion,the financial information quality risk and going concern risk are significantly positively correlated with the content of KAMs,while in the non-standard audit opinions,the financial information quality risk and going concern risk are not significantly correlated with the content of KAMs.This shows that under the standard unqualified audit opinion,the key audit matters can provide incremental risk information on the basis of audit opinion and have incremental information value.The key audit matters can further expand the dimension of risk disclosure when the audit opinion does not show the relevant risks,and expand the "existence of significant risks" to "the level of potential risks";While under the non-standard audit opinion,the audit conclusion has played an important role in risk indication,and it is difficult to provide incremental information based on the content of key audit matters.(3)Under different audit opinions,there are also differences in the decision-making usefulness of KAMs for investors.Under the standard unqualified audit opinion,the key audit matters have a negative impact on the decision-making of investors,weaken and inhibit the investment willingness and investment behavior;While under the non-standard audit opinion,the investors do not generate additional market response to the key audit matters on the basis of the audit opinion,and the key audit matters do not have the decision-making usefulness.Under the condition of issuing non-standard audit opinion,the risk signal of key audit matters is weaker than that of audit opinion.Investors are no longer sensitive to KAM,and will not be influenced in the decision-making process.Maybe as the conclusion of audit work,audit opinions have summarized the risks identified in the audit process.When the audit conclusion is disclosed with enough risk information,the KAMs can not provide incremental decision-making information based on non-standard audit opinions,and the investors are no longer sensitive to the KAM.At the same time,through further research,we find that firm reputation and institutional investors have no moderating effect on the decision-making effect of key audit matters.This study shows that the the incremental information content and decision usefulness of KAMs varies under different audit opinions.Which means that the incremental information content of KAMs is the reason for its decision usefulness,and the financial information quality risk and going concern risk transmitted by key audit matters can effectively meet the decision-making needs of investors.When making decisions by using key audit matters,investors are based on understanding their information content,rather than the impact of formal changes in the audit report mode.The development of China's capital market has reached a certain maturity,and the information transmission mechanism is effective.Through empirical research and analysis,this paper finds that investors' sensitivity to risk information in different audit opinions and key audit matters can be reduced in this order: major misstatement risk,major going concern risk(uncertainty of going concern),financial information quality risk and genenral going concern risk.Accordingly,information content and decision-making between different audit opinions and key audit matters are useful in this order: non unqualified audit opinion,unqualified audit opinion with emphasis paragraph,key audit matters,standard unqualified audit opinion.Therefore,the key audit matters communicate the gray area between the standard unqualified audit opinion and the non-standard audit opinion,and further enrich the information disclosure level of the audit report,and make up for the deficiency of the information content of the audit opinion.To sum up,the key audit matters standard has achieved certain results in the early stage of implementation in China,basically realized the original intention of the reform of audit report mode,increasing the information content and decision-making usefulness of audit report to a certain extent.However,the incremental value and decision usefulness of key audit matters are different under different audit opinions.Under the standard unqualified audit opinion,it further reveals the financial information quality risk and going concern risk identified in the audit process,and effectively passes the risk information to the investors to assist them in investment decision-making.Under the non-standard audit opinion,the key Audit matters are difficult to realize the incremental value and affect the decision-making of investors.This study further enriches the theory of audit system,establishes the analysis framework and specific mechanism of realizing information increment value and decision usefulness of KAMs based on different audit opinion,which is helpful to further reduce the information asymmetry between listed companies and investors,strengthen the system representation function of CPA audit report,and furtherly close the expectation gap.This study has positive significance for the deepening reform of audit report and the perfection of capital market system.