Preventive Supervision and Disclosure of Key Audit Matters——Evidence from the CICPA's risky engagement interview
The reform of the registration system centered on information disclosure is a significant practice of institutional innovation in the capital market.In this context,how to enhance the service capabilities of intermediary institutions through strengthening regulation is a crucial topic of interest for both the theoretical and practical sectors.This paper utilizes data from the CICPA's Risky Engagement Interview to examine the impact of CICPA's preventive regulation on key audit matters disclosure.The study finds that after being interviewed by the CICPA,accounting firms disclose more and more positive conclusive evaluations on key audit matters(KAMs).The effect is stronger when the firms have lower industry expertise and higher audit input.Furthermore,the regulatory effect of the interview is better after face-to-face interviews,when the frequency of interview is higher,and when the content of interview is more relevant.In addition,the interview significantly enhances the information content of the mandatory disclosure of KAMs and audit quality.After the interview,the firms reduce the probability of penalties and increase their market share.This paper,grounded in China's audit regulatory practice,responds to the debate between"presumptive regulation theory"and"restrictive regulation theory",and provides a Chinese solution to improving audit quality for regulatory authorities and audit institutions worldwide.