Key Audit Matters And Related Party Transaction Governance

At the end of 2016,Ministry of Finance of China issued Chinese Certified Public Accountants Auditing Standards No.1504,requiring add key audit matters in the audit reports of listed companies.It was first piloted in A and H share companies,and has been implemented in all listed companies since 2018.Adding key audit matters has improved the traditional audit report,and the research enthusiasm has gradually increased.The current research mainly focuses on the auditor’s responsibility and investor response,but the research scope can and needs to be expanded.On the one hand,China’s capital market urgently needs to improve the governance of related party transactions.On the other hand,the disclosure of key audit matters has changed the current situation in which audit only played a governance role through audit opinions in the past.Governance can be played by reducing information asymmetry,revealing risks,and strengthening internal and external supervision.Therefore,this paper focuses on the impact of key audit matters on the governance of related party transactions from the perspective of principal-agent,which enriches the research on the economic consequences of key audit matters and expands its research perspective.The research of this paper has important theoretical and practical significance for further improving the audit report in the future,and is of great significance for further strengthening the governance of related party transactions of the company.The research methods of this paper include literature and theory research method,empirical research method.In terms of literature and theory,this paper summarizes the literature related to key audit matters and related party transaction governance,and analyzes the impact of key audit matter disclosure and conclusive evaluation on related party transaction governance based on basic theory.In terms of empirical testing,this paper first selects whether the listed company’s key audit matters in the previous period were disclosed and the auditor’s avoidance of positive and conclusive evaluations as independent variables,and the level of encroaching related party transactions in the current period as dependent variables to conduct regression analysis;then test In the case of different levels of company ownership balance and board independence,is there any difference in the impact of key audit matters on the governance of related party transactions? Finally,the mechanism test is carried out from the perspective of joint supervision,and the average disclosure of key audit matters is exploratoryly analyzed.The Effect of Word Count,Firm-Level Disclosure Type,and Tone on Related Party Transactions Governance.The conclusions drawn in this paper are as follows.First,the disclosure of key audit matters can improve the governance of related party transactions.Second,avoiding publishing positive conclusive evaluations can play a role in the governance of related party transactions.Third,the impact of key audit matters on the governance of related party transactions is more obvious.Fourth,in companies with higher board independence,the impact of key audit matters on the governance of related party transactions is more obvious.Fifth,the impact of key audit matters on the governance of related party transactions needs more intermediary of the supervisory office.Based on the above conclusions,this paper puts forward the following suggestions.First,Chinese government should adhere to the direction of audit report reform and pay attention to the incremental information of the report.Second,auditors should strengthen the application of risk-oriented audit in the disclosure of key audit matters,they should reveal risks rather than give positive evaluations.Third,auditors should strengthen the supervision of related party transactions for companies with a low degree of equity control and balance.Besides,external administrative agencies should strengthen the supervision of related party transactions for companies with low board independence.Finally,strengthening the coordination of intermediary agencies for related party transactions governance and introducing more market and administrative supervision forces are also needed.The main contribution of this paper is to expand the research perspective of key audit matters and enrich the research on related party transaction governance in auditing,which has theoretical and practical significance for the healthy and stable development of the capital market.The shortcoming is that the research depth of this paper is not enough,the industry can be subdivided and more representative variables can be selected for research in the future.