Auditor "Diligence" And Audit Quality

This paper takes the development of auditing standards in the United States and the audit reports of Coca Cola Company over the years as examples to illustrate the development trend of standard audit reports from standardization to differentiation.Personalized audit report,especially the disclosure of key audit matters(KAMs)is the key to the differentiation of standard audit reports,which makes the input-output process of audit services no longer a "black box",providing research opportunity of different audit input.This paper measures audit effort by the similarity of KAMs through text analysis approach,and then describes the KAMs’similarity of China’s audit market from the firm level,and finally studies the impact of audit effort on audit quality.In this paper,to measure the average industry similarity of item content and audit response of KAMs respectively by NLP rules,we use the KAMs data disclosed by Chinese listed companies in 2017-2018,and review its effect on audit quality.The results of this paper indicate that the association between the similarity of KAMS item content and audit quality is not evident,but the higher the similarity of audit response of KAMs,the higher the absolute value of discretionary accruals,the more likely the financial statements are to be restated in the later period,and the lower the audit quality.The negative effect of the similarity of audit response of KAMS is more obvious on audit quality than the similarity of item content of KAMs.This may indicate that when auditors disclose audit response of KAMs in audit report,they may refer to KAMs disclosures of other listed companies from the same industry,and the audit effort is likely to be lower.Further analysis shows that KAMs are more likely to become a boilerplate for the industry in the case of firm changes with audit team changes.After changing the measurement method of audit quality and the model of similarity calculation,regression outcomes are still robust.This paper enriches the research on KAM textual insight and provide some evidence of the audit effort’s influence on audit quality.