Market Response Study Of The First Key Audit Matters Under The New Reporting Standard

Independent auditing plays a vital role in maintaining the order of the market economy.Audit reports serve as an important medium for CPAs and report users to transmit information,changes in their content and format will affect directly the capital market.On December 23,2016,the Ministry of Finance officially issued a notice on the issuance of 12 criteria such as “China CPAAuditing Standard No.1504 – Communicating Key Audit Matters in Audit Reports”(Accounting [2016] No.24).The biggest change in the audit reporting guidelines was the modification of the elements and format of the audit report by adding key audit matters.On February 18,2017,Chenming Group announced its 2016 annual audit report,which was the first audit report on the Chinese securities market with key audit matters,which aroused widespread concern in society.In this context,the specific research and analysis of the market response of the first audit report containing key audit matters has important theoretical and practical significance.Through literature review and theoretical analysis,paper finds that the market reaction of researching key audit matters can reflect the information content of key audit matters.Therefore,this paper chooses to use the event study method to research the implementation of the new audit reporting standards with the disclosure of the first key audit matters in the capital market as a research event.In order to avoid the influence of other factors on the stock price,this paper selects the empirical data of the short window period of five days before and after the announcement date of Chenming 2016 annual audit report to research the market reaction effect of Chenming's first key audit matters and the possible reasons,and takes the market data of Chenming 2001-2015 audit report window as the longitudinal contrast sample,the market data from the 2016 annual audit report window of other paper-making companies in the A-share and H-share market as the horizontal comparison sample.In addition,this paper also compares the reaction of the A-share and H-share markets to Chenming Group's first key audit matters,and studies the implementation of the new audit reporting standards in the two stock markets.Through the above comparative analysis,this paper draws the following researchfindings:(1)The cumulative abnormal return after the announcement of Chenming Group's disclosure of key audit matters in the audit report has increased significantly compared with the previous years,indicating that the first key audit matters disclosed by Chenming Group have attracted the attention of investors in the stock market.(2)In the A-share market,Chenming Group's 2016 annual disclosure of key audit matters resulted in a significant positive cumulative abnormal return,while the cumulative average abnormal return of paper-making companies that did not disclose key audit matters in the same year is always negative in the event window period,indicating that the disclosure of key audit matters has had a positive impact on Chenming Group's share price.(3)In the H-share market,the cumulative abnormal return of Chenming Group in 2016 was significantly higher than other paper-making companies that disclosed key audit matters in the same year,indicating that the first key audit matters disclosed by Chenming Group has produced a more pronounced market reaction.(4)Different types of stock markets have different responses to Chenming Group's disclosure of key audit matters,and the H-share stock market is more active than A-share.Through the analysis of the market reaction of Chenming Group 's first key audit matters,we can see that the reform of the new audit reporting standards has achieved certain expected results.In order to further consolidate the effect of reform and improve the information content of audit reports,this paper proposes relevant recommendations for standardizing the disclosure of key audit matters from three aspects: regulatory agencies,accounting firms and certified public accountants.The regulatory agencies shall improve the relevant provisions of the new audit reporting standards for the problems found in the implementation of the standards,and strengthen the supervision of the implementation of the standards.Accounting firms should improve their quality control system,strengthen their sense of innovation,and get rid of the imprisonment of the format and content of key audit matters that have been disclosed in previous years and in the same industry.Certified public accountants should improve their professional judgment,strengthen their professional competence,and make unremitting efforts to describe the key audit matters and audit responses identified accuratelyand individually.