Research On The Impact Of New Audit Reporting Standards Implementation On Audit Quality

The exposure of Enron's financial fraud scandal and the outbreak of the subprime mortgage crisis focused the public on CPAs,arguing that the audit reports issued by CPAs had low audit quality and low information content,making it impossible to help investors make decisions.In these contexts,IAASB issued the International Auditing Standard “ISA701-Crucial Audit Matters” in 2015,hoping to improve the quality of audits through disclosure of crucial audit matters and improve the investor's decision-making ability.In order to achieve convergence with international standards,on the basis of drawing on international standards and in combination with its own situation,the Ministry of Finance of China officially issued CSA1504,which has brought people's attention to crucial audit matters.Based on the theory of accountability,cost-benefit theory,"deep pocket" theory and the theory of diminishing marginal returns,this paper deeply analyzes the mechanism of new audit reporting standards implementation to improve audit quality.Based on a sample of A-share listed companies from 2014 to 2016,this paper adopts propensity score matching and difference-in-difference methods(PSM-DID),and examines the impact of new audit reporting standards implementation upon the quality of audit reports issued by accounting firms,and the impact of the new audit reporting standards implementation on the audit quality under the reputation of different accounting firms.This paper further studies the impact of different types of crucial audit matters disclosure in the new audit reporting standards on audit quality.The results show that new audit reporting standards implementation significantly improve audit quality as compared to the absence of new audit reporting standards implementation,and the improvement is more significant for accounting firm with low reputation as compared to accounting firm with high reputation.Further research finds that only the disclosure of crucial audit matters of assets and liabilities and crucial audit matters involving significant management judgement can significantly improve the audit quality of audit reports.The above findings demonstrate that new audit reporting standards implementation improve the quality of audit reports.Based on this,this paper proposes the following policy recommendations to policy-making institutions,accounting firms,and the public: strengthen the promotion and training of new audit reporting standards,refine the requirements for disclosure of crucial audit matters,enhance the ability of CPAs to identify crucial audit matters,strictly implement quality control systems,establish a good brand reputation,improve their knowledge reserves,and make rational use of the value of the audit report.