Title

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

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

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