Research On The Disclosure Of Critical Audit Matters And Perception Of Audit Legal Liability

Audit report is a written document where certified public accountants issue an audit opinion on the audited entity's financial statements.In order to enhance the effectiveness of audit reports for the users of financial reports,the International Auditing and Assurance Standards Board(IAASB)officially released the newly formulated(revised)auditing standards for reports on January 15,2015.In order to maintain the continuous and overall convergence with international standards,the Chinese Institute of Certified Public Accountants(CICPA)formally released the newly revised auditing standards for reports on December 28,2016.Disclosure of "Critical Audit Matters" is the most important content of this standard reform.It effectively increases the value of the audit report information communication,and also has a significant impact on the CPA's legal litigation risk and audit legal liability.In this paper,we choose masters who are studying accounting,financial management and auditing as participants and choose theoretical analysis and experimental study to verify disclosure of critical audit matters and perception of audit legal liability based on the perspective of accounting standards setting approaches.This paper is divided into six chapters.The first chapter is the introduction.The second chapter is the literature review,we systematically review and summarize the comment of auditing standards for reports reform,disclosure of critical audit matters' effect on the investors' behavior and perception of audit legal liability,the formation,definition,control and avoidance of audit legal liability and its effect on audit quality,and other literatures about accounting standards setting approaches.The third chapter is the theoretical basis and research hypothesis,including the definition of critical audit matters,audit legal responsibility and accounting standards setting approaches concepts,analysis and elaboration of information processing theory,attribution theory and guilty control theory,then accordingly proposing research hypothesis.The fourth chapter is the experimental design,including the determination of participants,research design,experimental tasks,experimental process and variable setting.The fifth chapter is the experimental results,including the control test and hypothesis test.The last chapter is theconclusion of this paper,including the basic conclusions and policy recommendations,and the limitations of this study as well as future research directions.The main conclusions of this paper include:(1)After auditing,if the supervisory departments discover that the audited entity has made material misstatements in the relevant fields,the critical audit matters would mitigate the audit legal liabilities perceived by investors.Critical audit matters serve as "warning signal",not only show that certified public accountants' diligence and rigorous in audit work,then help investors to understand that audit work is complex and difficult,but also show that certified public accountants have assessed its potential for the risk of material misstatement areas,thus mitigating investors' perception of audit legal liability.(2)Compared with disclosing critical audit matters only,audit legal liability perceived by investors would be enhanced when certified public accountants disclose critical audit matters and relevant audit procedures for the matter at the same time.Disclosure audit procedures means that there is no material misstatement of the critical audit matters,and certified public accountants have made more efforts on how to deal with the matters.If material misstatements occur,investors would directly blame on the certified public accountants who are responsible for failing to find the misstatements.(3)Compared with disclosing critical audit matters,audit procedures related to the matters and making a negative assurance,when certified public accountants make a positive assurance,audit legal liability would be enhanced.Compared with negative assurance,a positive assurance would make investors feel that certified public accountants have made a higher degree of assurance about critical audit matters.Once there were material misstatements in the relevant fields,investors would directly consider that certified public accountants' audit works were not in place and audit judgments were error,so they should assume a higher audit legal liability.(4)Compared with rules-based accounting standards,no matter how certified public accountants disclose critical audit matters,audit legal liability perceived by investors is higher under principle-based accounting standards.Principle-based accounting standards require subjective professional judgment of certified public accountants,so that they faceat obvious litigation risk;rule-based accounting standards have detailed and explicit provisions and are easier to supervise the implementation,they can make a clear legal liability in litigation and have a better self-protection.Therefore,under principle-based accounting standards,investors would,to a very high degree,attribute the audit legal liability to certified public accountant,exceeding that of auditing under rules-based accounting standards.