Abstract
A newly released audit principle required all public companies to include critical audit matters (Cam) in financial reports, whose features and informational value was empirically studied in this paper. Results showed that, current Cams are quantitatively small, accurately and specifically poor and they mostly come in statements rather than in forms, and institutional investors withdrew more investment as the number and accuracy of cams went up. Further studies showed that the informational value of Cams was more significant in companies with high informational asymmetry and companies audited by relatively less professional audit firms (neither international big 4 nor national big 10 audit firms).
Highlights
On December 23, 2016, China launched the Chinese certified public accountants audit standards No 1504—communication critical audit matters in the audit report, requiring that all listed companies in the auditing reports issued by the certified public accountants shall be setting “critical audit matters” as the title, and using appropriate subheadings, item by item description in the part critical audit matters
Disclosure of critical audit matters characteristics and institutional investor shareholding has carried on the multiple regression analysis, to explore the informational value of critical audit matters and the influence of the value of the information disclosure characteristics
Study shows that the critical audit matters number and the proportion of number in critical audit matters both have a negative effect on institutional investor shareholding
Summary
On December 23, 2016, China launched the Chinese certified public accountants audit standards No 1504—communication critical audit matters in the audit report (hereinafter referred to as “principles”), requiring that all listed companies in the auditing reports issued by the certified public accountants shall be setting “critical audit matters” as the title, and using appropriate subheadings, item by item description in the part critical audit matters. The audit conclusion or process involves less, based on a single clean and not clean audit reports to the value of investors questioned by more and more (Zhang et al, 2016), a simple conclusion type audit report has been unable to meet the investment decision-making process the required information (IAASB, 2011); professional auditors in the process of audit judgment, identify the material misstatement risk, and though through their judgment, the risks in financial report are at a reasonable level, so it is not enough to conclude a not clean opinion If this part of the risks information is directly showed to the financial report users, they may draw a different conclusion, so that investors need this part of information. The research question of this paper is put forward: Does the disclosure of critical audit matters affect the investment behavior of institutional investors?
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