Premium
Accounting Standards, Earnings Transparency and Audit Fees: Convergence with IFRS in China
Author(s) -
Ye Qiang,
Gao Jie,
Zheng Weiguang
Publication year - 2018
Publication title -
australian accounting review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.551
H-Index - 36
eISSN - 1835-2561
pISSN - 1035-6908
DOI - 10.1111/auar.12226
Subject(s) - accounting , business , transparency (behavior) , audit , earnings , fair value , earnings response coefficient , earnings quality , international financial reporting standards , accrual , political science , law
Abstract This study investigates the effect of China's new accounting standards (which converged with International Financial Reporting Standards (IFRS) in 2007) on a new market‐based attribute of earnings quality – earnings transparency (defined as the explanatory power of the returns–earnings relation at firm level) – and their association with audit pricing. Using China's listed companies from 2001 to 2012 as a sample, we find that the adoption of China's new accounting standards, specifically the introduction of fair value measurement and the change in the accounting treatment of minority interest income, increases earnings transparency. We also find that earnings transparency negatively impacts audit fees, and the adoption of new accounting standards attenuates the negative association between earnings transparency and audit fees. This study has implications for standard setters, auditors and managers regarding the change in the information environment of investors resulting from IFRS convergence in China from a new perspective.