Auditing research using Chinese data: what’s next?

Abstract

During the past decade, there has been a surge in auditing research that exploits Chinese data, much of which is published in top tier journals. China has been an attractive setting for auditing research due to the highly granular nature of the available data on public audits and the unique features of Chinese institutions. These advantages have allowed researchers to use Chinese data to study important auditing questions that US data is unable to address. But the popularity of Chinese data among researchers means that most of the obvious questions that lend themselves to the use of Chinese data are likely to be exhausted. In addition, newly mandated disclosures in the US and Europe are quickly making Chinese data much less unique than it used to be. Now that the “low hanging fruit” is gone, researchers who plan to use Chinese data will have to be more creative. This paper suggests some strategies, going forward, that are designed to further exploit the richness of Chinese data to address important questions in the auditing literature.

Keywords:

• China
• auditing
• data
• institutions
• regulation

Acknowledgements

We appreciate helpful comments from Clive Lennox, Phyllis Mo, Jeff Pittman, T.J. Wong, Donghui Wu and Kevin Wu, as well as participants at the 2018 Accounting and Business Research Conference on Auditing at Peking University, Beijing, China.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 We restrict our analysis to studies that use mainland Chinese data and do not include studies that use Taiwanese or Hong Kong data.

2 Accounting and Business Research published one study in this area over this time period, Chan et al. (2016). This study finds that audit risk and complexity, and auditor expertise are associated with the length of audit report lags in China and that firms with long report lags are subsequently more likely to receive a non-standard audit opinion.

3 Chinese regulators changed the litigation laws and increased regulatory enforcement beginning in 2001, following the corporate scandal at YinGuangXia, a listed company in China that was found to have fraudulently reported $85 million in profits. The YinGuangXia scandal was so infamous that the Chinese media referred to Enron as the ‘American YinGuangXia’ (Newsweek 200 4).

4 Figures 8 and 9 are from DeFond, Li et al. (2019).

5 Specifically, Chinese regulations require Modified Audit Opinions to be classified into MAOs with content (e.g. GAAP violations) and presentations (e.g. explanatory notes regarded by many as quasi qualifications). This level of granularity is not available in the US.