Auditors' reporting conservatism after regulatory sanctions : evidence from China
Document Type
Journal article
Source Publication
Journal of International Accounting Research
Publication Date
7-1-2014
Volume
13
Issue
2
First Page
1
Last Page
24
Publisher
American Accounting Association
Keywords
audit risk, auditors' reporting conservatism, going-concern opinions, modified audit opinions, regulatory sanctions
Abstract
This study examines whether regulatory sanctions have a disciplinary effect on auditors in a large emerging market. Based on the enforcement releases issued by the China Securities Regulatory Commission (CSRC) during 1996-2007, we hypothesize and find that auditors who are sanctioned for failure to detect and report financial statement fraud report more conservatively after the sanction. Our empirical findings specifically suggest that sanctioned auditors issue more going-concern opinions for risky clients after enforcement action than they did before the enforcement action. In contrast, we find no such effect for non-risky clients. Overall, we provide evidence that regulatory sanctions are effective in shaping auditors' behavior when they audit risky clients.
DOI
10.2308/jiar-50711
Print ISSN
15426297
E-ISSN
15588025
Publisher Statement
Copyright © 2014 American Accounting Association
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Firth, M. A., Mo, P. L. L., & Wong, R. M. K. (2014). Auditors' reporting conservatism after regulatory sanctions: Evidence from China. Journal of International Accounting Research, 13(2), 1-24. doi: 10.2308/jiar-50711