Topic: The Spillover Effect of Audit Regulation on Annual Report Inquiry Letter - Evidence from Text Similarity

Speaker: Yuanyuan Liu

Date & Time: 13:30-15:00 Friday, June 30, 2023

Venue: Tencent Meeting (ID: 444 573 628)

Organizers: School of Accounting, Dongbei University of Finance and Economics, P.R. China & Liaoning Capital Market Finance and Accounting Graduate Innovation and Academic Exchange Center

Abstract:

Inquiry letters have been effective in capital market governance, and inquiry letters that focus on annual reports should play a role in annual report auditing. This article proposes that the annual report inquiry letter has an spillover effect of audit regulatory, that is, it spills over from the inquired company and forms an external governance effect on the accounting firms, further affects the annual report auditing of other audited companies. The empirical test based on text similarity found that compared to the annual audit firms of the companies that has not been inquired, the annual audit firms of the inquired companies have a higher similarity between the key audit matters of other audited companies and the annual report inquiry letters. This is more evident among the big four firms, the firms sampled by the China Securities Regulatory Commission, and certified public accountants with strong learning ability and needs, which meets the expectations of reputation maintenance, quality control, and learning effects. Further research has found that the above effects are stronger at the level of the audit team and certified public accountants. They are stronger when the annual report inquiry letter is issued later than the disclosure date of the annual report and earlier than the disclosure date of the key audit matters. They are not significant when the interval between the key audit matters and the annual report inquiry letter exceeds two fiscal years. In addition, the above effects can contribute to reduce the probability of other audited companies of the accounting firms being inquired in the annual report. The above conclusions support the positive role of annual report inquiry letters in the governance of accounting firms, expand the regulatory boundaries of the exchange inquiry system, and enrich the policy ideas of accounting firm governance.

Introduction of Speaker:

Yuanyuan Liu, Associate Professor, Master Supervisor at School of Management of Xiamen University, and Joint PhD from Guanghua School of Management of Peking University and Singapore Management University, has presided over 1 project and participated 2 of the National Natural Science Foundation of China, and has participated in 1 major national social science project. As the first author or corresponding author, she has published multiple academic papers in important domestic and international academic journals such as Auditing: A Journal of Practice&Theory, Journal of Accounting, Auditing&Finance, Accounting&Finance, International Review of Financial Analysis, and Economic Research Journal, Accounting Research, and Auditing Research. She has served as the anonymous reviewer for journals such as Economic Research Journal, Accounting Research (Chinese and English versions), The European Accounting Review, The British Accounting Review, and Accounting&Finance. Her courses include "Fundamental Accounting Principles" (all-English) and "Financial Accounting Theory and Practice", etc. She has been awarded the title of High-Level Talent in Fujian Province.

Special Attention:

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