Annual Report Comment Letters'Audit Supervision Spillover Effect——Evidence from Text Similarity
Can annual report comment Letters(ARCLs)have spillover effect on accounting firms?This paper provides evidence based on text simi-larity.The results show that compared with the annual audit accounting firms of the companies without ARCLs,the similarity between the key audit matters(KAMs)issued by the annual audit accounting firms of the queried companies and the ARCLs is about 0.76％higher,which is stronger in the big 4 ac-counting firms,firms inspected by the CSRC,and CPAs with strong learning ability and demand.Further analysis find that the main effect is more pro-nounced in the audit teams and the CPAs level,and when the ARCLs is issued later than the annual report and earlier than the KAMs.In addition,the main effect is not significant when the interval between the KAMs and the ARCLs is more than two years.Finally,the main effect helps to reduce the prob-ability of receiving ARCLs of accounting firms'other clients.The above results support the positive role of ARCLs in accounting firm governance,expand the supervision boundary of ARCLs,and enrich the policy thinking of accounting firm governance.
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