الفهرس 
Chapter 1: IntroductionOnly 14 pages are availabe for public view
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Abstract
Accounting is particularly concerned with information. To connect with its stakeholders, a firm’s management uses both quantitative (Numerical) and qualitative (Textual/Narrative) information. However, numerical financial information solely gives an imperfect image of a company’s condition, whilst textual/narrative information fills in the gaps and gives supplemental information. A firm’s financial annual report often includes both quantitative and qualitative information. Actually, textual narratives make up the majority of an annual report, over 80% on average. Disclosure Linguistic Tone refers to the optimistic or pessimistic sentiment preference expressed in the textual disclosure. While numerical financial information can depict a company’s current and previous financial performance and economic conditions, GAAP constraints mean that it is may not fully reflect all relevant information regarding future performance. In addition, annual reports users, as well as auditors, must encode quantitative information in order to process it. Thus, the rhetoric used in financial report narrative text assists in encoding and processing quantitative information. Consequently, the legislators and regulators have noted that the auditing process relying only on financial information could be ineffective in detecting misstatements and fraud, and have recognized the importance of the incorporation of qualitative information in the auditing process. Consistently, auditors typically spend a considerable amount of time and effort in collecting and evaluating client-specific information, in order to assess engagement risks. Thus, when assessing audit risk and calculating audit effort as a part of audit planning and pricing, auditors use a variety of information sources. Thus, clients’ several disclosure channels ‒including Textual/Narrative Disclosures‒ help auditors evaluate client-specific financial reporting and audit risk. Since the optimistic linguistic tone expressed within narrative disclosures included within annual reports is linked to firm’s economic outcomes, it is, hence, likely to reflect audit risk items, and then influence auditor choices and decisions. Therefore, this study aims to examine the effect of optimistic disclosure tone on (1) audit fees, (2) audit report lag, and (3) the likelihood of modified audit opinion. Furthermore, this study investigated the moderating effect of numerical financial information characteristics (accounting conservatism and earnings management) on the relationship between optimistic disclosure tone and the likelihood of modified audit opinion. This study employed a sample of non-financial firms listed on the Shanghai Stock Exchange or Shenzhen Stock Exchange for the period from 2007 to 2019. We find that the optimistic tone of textual disclosure in annual reports is negatively associated with (1) the audit fees, (2) the audit report lag, and (3) the likelihood of modified audit opinion ; indicating that auditors consider the optimistic disclosure tone, interpret it as a signal of lower engagement risks, and react positively to it by charging lower audit fees, issue timelier reports, and lessening the likelihood of issuing a modified opinion. Thus, this study demonstrates that the optimistic tone of annual reports can have incremental information which could help auditors in assessing engagement risk factors. Furthermore, we find that the interaction term of both earnings management (accounting conservatism) and optimistic tone is positively (negatively) associated with the likelihood of modified audit opinion. Together, our findings suggested that earnings management (accounting conservatism) leads auditors to discomfort (comfort) the source credibility of signal released within the optimistic tone, and then tend to report more (less) conservatively, i.e., increase (decrease) the propensity of issuing modified audit opinion. In other words, this study provides corroborating empirical evidence suggesting that the effect of optimistic tone of textual (nonfinancial) disclosures on the audit outcomes is conditional on the attributes of the numerical financial information. The current study enriches the literature in some meaningful ways and provides four substantial contributions (innovations). First, the current study contributes to the growing body of research on the linguistic attributes of textual disclosures. Second, since evidence from prior auditing research on whether narrative disclosure tone assists auditors in audit choices and decisions is limited, mixed, and relatively restricted to developed countries, this study contributes to the literature on the audit implications of optimistic tone by providing further empirical evidence from an emerging context. Third, this study adds to the literature on the audit effects of the optimistic tone of textual disclosure using a novel approach by investigating the interaction effect of both textual disclosure tone and numerical financial information attributes on the likelihood of modified audit opinion. Fourth, our study adds to the literature on the narrative disclosure quality as well as the research on the relationship between the characteristics of both quantitative and qualitative information. Because quantitative financial information is becoming less informative as a result of increased discretionary reporting, our findings suggest that analyzing managers’ language in textual disclosures can provide a wealth of information regarding a client’s business operations. Thus, the findings of this study are likely to have some implications for legislators, regulators, annual report preparers and users, researchers, and auditors. For example, this study shed light on the critical role of the linguistic tone of narrative disclosures in the auditing process (evaluating audit risks, planning, pricing, reporting). So, our findings could urge standards setters and legislators to pay more attention to the standards which rule this type of information. Regulators also should stress the importance of narrative disclosures and devote more efforts to offer such disclosures to market participants and assure their truthfulness and credibility.