Financial report readability and audit fees: Evidence from China

This study investigates the impact of the readability of financial reports on audit fees. Moreover, it explores how various contextual factors affect the relationship between readability and audit fees from the perspectives of information provision, transmission and reception. Considering listed firms in the Chinese market, this study demonstrates the significant negative effect of financial report readability on audit fees. However, this association is weakened by annual report similarity, the board secretary's social capital and auditors' industry expertise. Furthermore, this study demonstrates that audit fees increase because of both prolonged audit delays and information asymmetry resulting from low readability. By presenting empirical evidence to substantiate the rationale and necessity for enhanced textual readability requirements, this research can provide valuable insights for corporations to improve the effectiveness of their information communication to external stakeholders, which is very important for enhancing financial report quality and aligns with the primary focus of standard setters.

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Publication Details

Journal
International Journal of Auditing
Published
2024-08-12
DOI
https://doi.org/10.1111/ijau.12366
Citations
3
Primary Topic
Auditing, Earnings Management, Governance
Type
article
Field-Weighted Citation Impact
2.84
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article

Financial report readability and audit fees: Evidence from China

Dongliang Yuan, Jianglong Yu, Rong Qin, Xiaojuan Yang
3 citations
International Journal of Auditing
Auditing, Earnings Management, Governance
2.84
article

Financial report readability and audit fees: Evidence from China

Dongliang Yuan, Jianglong Yu, Rong Qin, Xiaojuan Yang
article en
3 citations

Abstract

This study investigates the impact of the readability of financial reports on audit fees. Moreover, it explores how various contextual factors affect the relationship between readability and audit fees from the perspectives of information provision, transmission and reception. Considering listed firms in the Chinese market, this study demonstrates the significant negative effect of financial report readability on audit fees. However, this association is weakened by annual report similarity, the board secretary's social capital and auditors' industry expertise. Furthermore, this study demonstrates that audit fees increase because of both prolonged audit delays and information asymmetry resulting from low readability. By presenting empirical evidence to substantiate the rationale and necessity for enhanced textual readability requirements, this research can provide valuable insights for corporations to improve the effectiveness of their information communication to external stakeholders, which is very important for enhancing financial report quality and aligns with the primary focus of standard setters.

International Journal of AuditingVol. 29(1)
Beijing Union University (CN), Nankai University (CN), Lanzhou University (CN)
Openalex Percentile: Top 9%
Auditing, Earnings Management, Governance
2.84
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