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Do auditor changes affect the disclosure of critical audit matters? Evidence from China

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  • Chen, Lihong
  • Xiao, Tingting
  • Zhou, Jia

Abstract

The Public Company Accounting Oversight Board (PCAOB) encourages companies to enhance investor value by fully disclosing all their critical audit matters (CAMs). Auditor changes are also important capital market contractual acts, but few have analyzed the effect of auditor changes on disclosures of CAMs. Using data from 2016 to 2020 on Chinese listed companies, we find that companies disclose more CAMs when they change the audit firm and all signing auditors together, with auditor independence, fresh perspectives, and audit effort as potential channels. We also find that changes in disclosing CAMs due to auditor changes positively affect audit quality, financial reporting quality, and stock market pricing efficiency. These findings highlight the vital impact of changing the audit firm and all signing auditors in improving audit and financial reporting quality and stock market pricing efficiency through adequate disclosure of CAMs.

Suggested Citation

  • Chen, Lihong & Xiao, Tingting & Zhou, Jia, 2023. "Do auditor changes affect the disclosure of critical audit matters? Evidence from China," Economic Modelling, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:ecmode:v:122:y:2023:i:c:s0264999323000573
    DOI: 10.1016/j.econmod.2023.106245
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    2. Emad Noureldeen & Mohamed Elsayed & Ahmed A. Elamer & Jianming Ye, 2024. "Two-tier board characteristics and expanded audit reporting: Evidence from China," Review of Quantitative Finance and Accounting, Springer, vol. 63(1), pages 195-235, July.

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