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Accounting Standards, Earnings Transparency and Audit Fees: Convergence with IFRS in China

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  • Qiang Ye
  • Jie Gao
  • Weiguang Zheng

Abstract

This study investigates the effect of China's new accounting standards (which converged with International Financial Reporting Standards (IFRS) in 2007) on a new market‐based attribute of earnings quality – earnings transparency (defined as the explanatory power of the returns–earnings relation at firm level) – and their association with audit pricing. Using China's listed companies from 2001 to 2012 as a sample, we find that the adoption of China's new accounting standards, specifically the introduction of fair value measurement and the change in the accounting treatment of minority interest income, increases earnings transparency. We also find that earnings transparency negatively impacts audit fees, and the adoption of new accounting standards attenuates the negative association between earnings transparency and audit fees. This study has implications for standard setters, auditors and managers regarding the change in the information environment of investors resulting from IFRS convergence in China from a new perspective.

Suggested Citation

  • Qiang Ye & Jie Gao & Weiguang Zheng, 2018. "Accounting Standards, Earnings Transparency and Audit Fees: Convergence with IFRS in China," Australian Accounting Review, CPA Australia, vol. 28(4), pages 525-537, December.
    • Handle: RePEc:bla:ausact:v:28:y:2018:i:4:p:525-537
    DOI: 10.1111/auar.12226
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    Cited by:

    1. Cynthia W. Cai & Martina K. Linnenluecke & Mauricio Marrone & Abhay K. Singh, 2019. "Machine Learning and Expert Judgement: Analyzing Emerging Topics in Accounting and Finance Research in the Asia–Pacific," Abacus, Accounting Foundation, University of Sydney, vol. 55(4), pages 709-733, December.
    2. Esraa Esam Alharasis & Hossam Haddad & Maha Shehadeh & Ahmad Saleem Tarawneh, 2022. "Abnormal Monitoring Costs Charged for Auditing Fair Value Model: Evidence from Jordanian Finance Industry," Sustainability, MDPI, vol. 14(6), pages 1-21, March.
    3. Esraa Esam Alharasis & Ahmad Saleem Tarawneh & Maha Shehadeh & Hossam Haddad & Ahmad Marei & Elina F. Hasan, 2022. "Reimbursement Costs of Auditing Financial Assets Measured by Fair Value Model in Jordanian Financial Firms’ Annual Reports," Sustainability, MDPI, vol. 14(17), pages 1-21, August.
    4. Athira, A. & Ramesh, Vishnu K., 2023. "COVID-19 and corporate tax avoidance: International evidence," International Business Review, Elsevier, vol. 32(4).
    5. June Cao & Chris Patel, 2020. "The role of the national institutional environment in IFRS convergence: a new approach," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3367-3406, December.

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