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Two-tier board characteristics and expanded audit reporting: Evidence from China

Author

Listed:
  • Emad Noureldeen

    (Lancaster University
    Mansoura University)

  • Mohamed Elsayed

    (Queen’s University Belfast
    Mansoura University)

  • Ahmed A. Elamer

    (Brunel University London
    Azerbaijan State University of Economics
    Gulf University for Science and Technology)

  • Jianming Ye

    (Xiamen University)

Abstract

This paper investigates the relationship between the characteristics of the two-tier board structure (board of directors and supervisory board) and the disclosure of key audit matters (KAMs) in the expanded audit report. Using a sample of 10,857 firm-year observations of Chinese listed firms spanning the 2017–2020 period, we offer two main results. First, with regard to the board of directors, we find that the auditor discloses a greater number and lengthier content of KAMs when there is a CEO duality and the board meetings are more frequent. Second, conversely, we find that the size and independence of the supervisory board are related to a lower number and length of KAMs disclosure. When we distinguish between account-level KAMs and entity-level KAMs, our further analysis shows that our results are principally associated with account-level KAMs rather than entity-level KAMs. Specifically, we find that CEO duality and the frequency of board of directors meetings are positively related to account-level KAMs. We also find that the size and independence of the supervisory board are negatively related to account-level KAMs. Our further analysis also shows evidence that these two-tier board structure characteristics are associated with the tone of KAMs disclosure in a consistent fashion. Our findings are robust and address endogeneity problems. Overall, our results suggest that the characteristics of the two-tier board structure drive KAMs disclosure, which should be of interest to regulatory bodies, policymakers, auditors, multinational firms, and users of financial reports.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:rqfnac:v:63:y:2024:i:1:d:10.1007_s11156-024-01256-6
    DOI: 10.1007/s11156-024-01256-6
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    More about this item

    Keywords

    Expanded audit report; Two-tier board; Corporate governance; Key audit matters; Board of directors; Supervisory board;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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