Consequences of the Adoption of the Expanded Auditor’s Report : Evidence from Hong Kong

Effective on December 2016, the Hong Kong Institute of Certified Public Accountants issued a set of new and revised auditing standards that require a discussion of Key Audit Matters (KAMs). We investigate whether KAMs provide incremental information to investors and if the changes to the auditor's report have indirect consequences for audit fees and audit quality. We implement a difference-in-differences research design, examining two years of data from companies listed in Hong Kong and Mainland China stock exchanges. We do not find evidence that KAMs provide incremental information to investors or that the new rules affect audit fees or quality. Next, we document that variation in the content of KAMs (e.g., types, number, length of the discussion, and company-specific focus) is not consistently associated with incremental information content, audit fees or audit quality. Our findings support some investors' demands for additional and more specific information in the auditor's report