Analysis on Key Audit Matters of Manufacturing Enterprises — A Case Study of Qingdao Daneng Environmental Protection Equipment Co., Ltd.

Abstract

Manufacturing industry serves as the pillar of national economy, and the quality of its financial reports as well as audit effectiveness are directly linked to the stable industrial development and the protection of investors’ interests. As the core component of the new audit reporting standards, the disclosure of Key Audit Matters (KAMs) effectively improves audit transparency and mitigates information asymmetry, acting as a vital tool to identify financial risks of manufacturing firms. Taking Qingdao Daneng Environmental Protection Equipment Co., Ltd. as the research object and based on Information Asymmetry Theory and Decision-usefulness Theory, this paper sorts out industrial features and current disclosure status of KAMs in manufacturing enterprises. It mainly analyzes two core KAMs of the company: revenue recognition and provision for expected credit losses on accounts receivable and contract assets, identifies deficiencies in accounting treatment, internal control and audit procedure implementation, and puts forward improvement suggestions from perspectives of financial information transparency, internal control construction, risk identification & assessment and audit procedure optimization. The research finds that KAMs of manufacturing enterprises are mainly concentrated in revenue recognition and asset impairment, accompanied by prevalent drawbacks including high subjectivity in accounting estimates, ineffective implementation of internal control and insufficient supporting audit evidence. Strengthening the identification, response and disclosure of KAMs can significantly upgrade audit quality and the credibility of financial statements for manufacturing companies, providing practical references for audit practices within the same industry.