Annual report inquiry letters, disclosure of key audit matters and audit fees: Evidence from Chinese A-share listed companies

• Authors: Xiaoyu Li , Hongyao Gou , Miao Wang

Abstracts

EN

Research background: Issuing an annual report inquiry letter is a powerful means by which securities exchanges regulate the information of listed companies, which can convey information, reveal risks, and sustain the orderly development of capital markets. However, research on the economic consequences is limited. Purpose of the article: This study analyses the relationships and mechanisms between annual report inquiry letters, key audit matters (KAMs), and audit fees. Methods: We collected data from Chinese A-share companies listed on the Shanghai and Shenzhen Stock Exchanges between 2017 and 2022, totalling 9,903 observations. We used Stata to conduct mediation effects and heterogeneity tests on the data. We also conducted further research on the relationship between audit fees and the purchase of audit opinions. Findings & value added: The results indicate that (1) companies that receive annual report inquiry letters have higher audit fees. Furthermore, (2) companies that receive annual report inquiry letters are more likely to increase the number of disclosed KAMs, leading to higher audit fees. Finally, (3) the above relationship is more significant amongst companies audited by non-Big-Four accounting firms than amongst those audited by Big-Four accounting firms. Further, the increase in audit fees for the sample companies is not due to the purchase of audit opinions and is combined with robustness tests, further validating the conclusions of this study. These findings contribute to research on the economic impact of implementing the annual report inquiry system and new auditing standards, providing empirical evidence for the effectiveness of government oversight of capital markets.

Keywords

EN

annual report inquiry letter; key audit matters; audit fees; audit quality

• Publisher: Instytut Badań Gospodarczych
• Journal: Oeconomia Copernicana
• Year: 2023
• Volume: 14
• Issue: 4
• Pages: 1303-1339

Dates

published

2023

Contributors

author

Xiaoyu Li

• Chongqing Technology and Business University

• https://orcid.org/000000026698399X

author

Hongyao Gou

• Chongqing Technology and Business University

• https://orcid.org/0009000552871881

author

Miao Wang

• Zhengzhou University

• https://orcid.org/0000000339032643

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Identifiers

DOI

10.24136/oc.2023.038

Biblioteka Nauki

39830171