Data asset disclosures tilt audit tone: evidence from china's A-share market

With a fixed-effects model and robust empirical strategies including propensity score matching (PSM) and instrumental variable (IV) approaches, this study examines the impact of corporate data asset disclosure on auditors' behavior from the perspective of the disclosure tone in key audit matters (KAM) using textual data from the annual reports of A-share listed companies in China from 2016 to 2023. Results indicate that the level of corporate data asset information disclosure positively influences the tone of auditors' KAM disclosures. Mechanism tests reveal that corporate data asset disclosure reduces audit risk through increased corporate transparency and improved internal control quality, motivating auditors to employ more positive language in the KAM disclosure section. Heterogeneity analysis demonstrates that the positive impact of corporate data asset disclosure on KAM tone is more pronounced for high-tech firms, firms with higher research and development intensity, accounting firms with advanced information technology, and those in regions with higher digital economy development. Additionally, tests of auditors' responses indicate that while auditors use more positive language in the KAM section based on the data asset disclosure level, they maintain due professional care and competence by increasing audit inputs and enhancing audit quality, without resorting to more frequent auditor changes. These findings are robust to alternative measures of disclosure and tone, sample restrictions, and model specifications. This study provides empirical evidence in an emerging market institutional setting for understanding auditors' data asset disclosure practices and offers implications for regulators, firms, and auditors navigating the digital transformation of financial reporting.