Litigation Risk and Key Audit Matter Disclosures: Evidence From a Quasi‐Natural Experiment in China

Wenfu Ding, Kuangyu Chen and Gaoliang Tian

Accounting and Finance, 2025, vol. 65, issue 5, 4507-4531

Abstract: This paper examines how auditors have responded to the impact of the introduction of the new securities law and focuses on the disclosure of KAMs. A generalised DID experiment was conducted by dividing the control group according to the level of firms' accrued surplus management. The results show that after the introduction of the new securities law, KAMs as ‘disclaimers’ are significantly less similar in the same industry, and auditors pay attention to and disclose more company‐specific risks. The perception of risk that the new securities laws create for auditors is a central mechanism for realising this path of action. This effect is even more pronounced for firms that employ industry‐specialist auditors and diversify their operations. At the same time, firms' own level of internal controls and other external regulation to which they are subject also influence the role of the new securities laws on key audit matters. Further research also found that the introduction of the new securities law led to an increase in audit fees and hours and a change in the form of disclosure of KAMs. These results shed light on the role of external regulation through auditors following the introduction of the new securities law and provide some insights into policy governance.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/acfi.70131

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:acctfi:v:65:y:2025:i:5:p:4507-4531

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0810-5391

Access Statistics for this article

Accounting and Finance is currently edited by Robert Faff

More articles in Accounting and Finance from Accounting and Finance Association of Australia and New Zealand Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().