Auditors’ Organizational Form, Legal Liability, and Reporting Conservatism: Evidence from China*

Firth, Michael; Mo, Phyllis Lai Lan; Wong, Ryc

doi:10.1111/j.1911-3846.2011.01081.x

Cited by 126 publications

(89 citation statements)

References 57 publications

(109 reference statements)

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“…Firth et al (2011a) show that auditors tend to issue qualified audit opinions for firms that incur financial restatements as a rational response to the increased audit risk. Firth et al (2011b) note that the organizational form of audit firms can affect their opinion: A partnership firm (limited liability firm) has more (less) wealth at risk and larger (smaller) risk and liability exposure, and therefore tends to issue qualified (clean) audit opinions.…”

mentioning

confidence: 99%

Executive integrity, audit opinion, and fraud in Chinese listed firms

Chen

Cumming

Hou

et al. 2013

Emerging Markets Review

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We examine the influence of auditors on corporate fraud in China. We find lower executive integrity firms are associated with higher propensity of regulatory enforcement actions against corporate fraud in the subsequent year. We then show that this effect is moderated by the issuance of modified audit opinion report by the auditors. This finding implies that auditors can serve an early warning role to discourage low integrity executives from engaging in corporate fraud. Our results have policy implications for further strengthening auditor independence in emerging countries like China.JEL classification: G15; G30; K22; M41

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mentioning

confidence: 99%

Executive integrity, audit opinion, and fraud in Chinese listed firms

Chen

Cumming

Hou

et al. 2013

Emerging Markets Review

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“…Therefore, auditors in partnership firms have a higher potential risk and liability exposure than auditors in limited liability firms. Consistent with this hypothesis, Firth, Mo, and Wong (2012) find that partnership CPA firms are more likely to issue modified audit opinions (i.e. more conservative) than limited liability firms.…”

Section: Auditorsmentioning

confidence: 56%

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

2014

China Account Financ Rev

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China’s stock market has gone through major structural changes since its inception in the early 1990s. In this survey article, we review the empirical literature published in 15 leading accounting and finance journals from 1998 to 2013 that documents these important structural changes. In analysing this literature, we focus on the ‘distinctiveness’ of the Chinese stock market compared with developed stock markets (e.g. US) and the research opportunities generated by the China setting. Key themes include China’s share issue privatisation (SIP) reforms, the political connections in privately owned companies, the characteristics of Chinese listed companies and their governance, the regulatory environment reforms in China, and the evolving role played by auditors and other information intermediaries.

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“…This disaffiliation process was completed by 2000 (Chen et al 2005). However, unlike limited liability partnerships in the U. S. where negligent partners" personal assets are still at risk, limited liability partnerships in China limit the liabilities of both non-negligent and negligent partners (Firth et al 2012). There is also evidence that provincial regulators required or strongly encouraged CPA firms to adopt a "particular organizational form" and that CPA firms did not have a "completely free choice" in choosing between the two organizational forms at the time of disaffiliation (Firth et al 2012, p. 11).…”

Section: Characteristics Of Chinese Accounting and Auditingmentioning

confidence: 99%

“…The State Council of the PRC formally supported these plans in Document 56 which lays out the government"s policies for the development of the accounting profession in China (Gillis 2010). In addition to having a practice license, Chinese CPA firms must also have a special license to audit listed companies (Firth et al 2012). The MOF and the China Securities Regulatory Commission (CSRC) issue regulations about the required size for CPA firms.…”

Section: Characteristics Of Chinese Accounting and Auditingmentioning

confidence: 99%

Auditing Issues with Chinese Reverse Merger Companies Traded in the United States

Stiner¹,

Lynn²

2012

ijafr

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Recently there have been two issues related to Chinese companies seeking capital in the United States. The first issue is frauds that have been perpetrated by companies using reverse mergers in order to go public. The second issue is fraud in continuing audit engagements when there has been reliance by an American audit firm on a foreign accountant"s audit work. There is also conflict between the Public Company Accounting Oversight Board (PCAOB) demanding to inspect audit work papers for companies in China and the Chinese government"s refusal to let the PCAOB see these work papers. These issues relate to characteristics of the practice of accounting and auditing in China that threaten auditor independence and audit quality. The paper discusses: (1) issues involving reverse mergers and the response of the Securities and Exchange Commission (SEC) to these issues, (2) issues involving reliance on the work of foreign Certified Public Accountants (CPAs) and the response of the PCAOB to these issues, (3) issues involving conflicts between U.S. regulatory agencies and the Chinese government over access to audit-related documents, and (4) suggestions for future research.

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Auditors’ Organizational Form, Legal Liability, and Reporting Conservatism: Evidence from China*

Cited by 126 publications

References 57 publications

Executive integrity, audit opinion, and fraud in Chinese listed firms

Executive integrity, audit opinion, and fraud in Chinese listed firms

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

Auditing Issues with Chinese Reverse Merger Companies Traded in the United States

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