An Empirical Study On The Impact Of Disclosure Of Key Audit Matters On Earnings Management

In order to enhance the transparency of information and the responsibility of certified public accountants,the Ministry of Finance promulgated the "Chinese Certified Public Accountant Audit Report Standards No.1504-Communication of Key Audit Matters in Audit Reports"(referred to as "No.1504 Standard")on December 23,2016.The "No.1504 Standard" adopts the method of batch implementation,stipulating that China's A + H-share listed companies' audit reports for use in the Mainland will apply the new standard from January 1,2017 and the scope of application will be extended to all listed companies from January 1,2018.The core of the "No.1504 Standard" is to require the addition of a key audit item paragraph in the audit report,and to disclose the reasons for the confirmation of the key audit item and the corresponding measures in the paragraph.The standard requires an increase in the information content of the audit report,and also sets a higher standard for the professional competence of certified public accountants.So far,A + H-share listed companies have disclosed key audit matters for three consecutive years,and pure A-share listed companies have also applied the new auditing standards for two years.What are the effects of the disclosure of key audit matters? Can the disclosure of key audit matters restrain the level of earnings management and improve the quality of financial statements? This is a hotly debated issue in academia and practice.This article discusses the impact of key audit issues on earnings management in this context.The literature on key audit matters at home and abroad is not abundant,and the research perspectives of existing literature are mostly on the impact of key audit matters on audit reports and investors.This article focuses on the impact of disclosure of key audit matters on the behavior of the audited unit.Taking A + H non-financial listed companies from 2013 to 2018 as a research sample,we not only empirically tested the impact of the disclosure of key audit matters on earnings management,but also further studied the impact of its disclosure characteristics on earnings management.This article measures the characteristics of key audit matters from the aspects of disclosure strength,content,audit input,and information homogeneity.The research conclusions show that:(1)disclosure of key audit matters can significantly inhibit the earnings management level of the audited unit;(2)the greater the disclosure intensity of key audit matters,the lower the earnings management level of the audited unit;(3)disclosure of key audit events of asset impairment has a significant inhibiting effect on earnings management level of the audited unit;(4)the greater the audit input for key audit matters,the lower the earnings management level of the audited unit;(5)the greater the homogeneity of key audit matters,the higher the earnings management level of the audited unit.This article examines the impact of key audit items on earnings management,enriches existing literature on key audit items and earnings management,and expands existing research on key audit items and earnings management.In addition,this article puts forward some constructive policy opinions from the three angles of the standard-setting department,certified public accountants and regulators,which provides ideas for the better implementation and improvement of the standards.