Influence Of New Audit Reporting Standards On Audit Quality

In order to strengthen the responsibility of CPA and improve audit quality,the Ministry of Finance issued 12 Chinese CPA auditing standards in December 2016 including ‘No.1504 Chinese CPA Auditing Standards:communicating key audit matters’.The new audit guidelines were first implemented in the audit business of A+H-share in January 1,2017,and then implemented in other listed companies on Shanghai and Shenzhen exchanges in January 1,2018.Among them,the most important part is the provision of Key Audit Matter(KAM)in the audit report of a listed company,requiring CPA to explain the reasons for the confirmation of key audit items and countermeasures.On the one hand,the regulation puts forward higher requirements for information disclosure of audit reports,on the other hand,it strengthens the responsibility of CPAs,reflecting the continuous convergence of China’s auditing standards and international norms.Up to now,both A+H and pure A shares have implemented new audit reporting standards.So,what is the effect of the implementation of the new audit reporting standards? Can the disclosure of KAM be increased effectively to improve the audit quality of listed companies? Is there a difference in the effectiveness of the implementation of the new audit reporting standards under different institutional environments? It is a matter of great concern to both the practical and academic circles at present.In this paper,we use empirical research method,from 2012 to 2017,all the new auditing reporting standards implemented by non-financial industry and the annual A+H-share companies and pure A share companies as the initial research samples,we examine the impact of the implementation of new auditing standards on audit quality.The results show that:(1)the implementation of the new audit reporting standards,by increasing the disclosure of KAM,can significantly improve the audit quality of listed companies.(2)After the implementation of the new auditing standards,compared to pure A shares,A+H shares of the company to improve the quality of audit is more significant;(3)After the implementation of the new auditing standards,if the company employed Big4 and Big10,the audit quality is significantly improved;if employed small audit company,the audit quality has not changed.The empirical results of this paper test the impact of the new audit reporting standards on audit quality under different institutional environments.Through comparing the different institutional environments between Mainland and Hongkong,we find that the implementation effect of new auditing standards may be different due to the different scale of firms employed by listed companies.The results of this paper enrich the empirical study on the implementation effect of audit standards.Secondly,this paper provides additional evidence for the understanding of the audit quality under the institutional environment difference.This paper puts forward policy recommendations and experience support for the revision and implementation of China’s new auditing standards,so as to promote the continuous convergence of China’s auditing standards and international standards.