Financial Restatements and Audit Fees of Listed Company
|School||Dongbei University of Finance|
|Keywords||financial restatement audit fees audit risk core financial restatement|
With the development of our society and the process of economic globalization, the rapid development of the securities market has increasingly become the focus and center of economic and social concerns. The sustained steady and rapid development of the securities market has become major issues which have great influence on national economy and people’s livelihood. And to ensure that the securities market’s sustained, healthy, stable and rapid development, we not only need to get the full information disclosure in time, but also need listed companies to set up a good governance mechanism. And external audit, as an integral part of corporate governance mechanisms, improves timeliness and sufficiency of the accounting information disclosure of securities market in China, improves and enhances the governance efficiency of listed companies in our country, through providing reasonable assurance for the authenticity of corporate financial reports as an independent third party.Audit fees, as the measure of the healthy and effectiveness of the external audit market, are increasingly valued. Since the1990s, the scandals of accounting information fraud occur frequently both at home and abroad. Financial restatement, as a major mechanism of accounting information correction has also been taken seriously. Considering the phenomenon of financial restatement, how certified public accountants will change their audit pricing strategy is the main focus of this research.On the basis of the organizational rationality theory and the risk aversion tendencies of accounting firms, we analyze the connection of audit risk and financial restatement, and then the relations between audit fees and financial restatement. It is argued that:From the vertical point of view, for the same listed companies in which financial restatement occurs, the audit fees charged by accounting firms are higher after the financial restatement than the audit fees before the financial restatement, so we think that accounting firms charge for higher audit fees on the same companies after they have financial restatement. From the horizontal point of view, for the different listed companies with approximate conditions, the audit fees of the companies with financial restatement are higher than those without financial restatement, so we think that accounting firms charge higher audit fees for the companies which have financial restatement than those without financial restatement. Many diversified reasons and contents may lead to the financial restatement of the listed companies, different types of financial restatement have different degrees of risk, different nature and different level of material misstatement risk that auditors assessed, which also means different changes of audit fees, core financial restatements may affect the reliability of the measurement of corporate performance, and non-core financial restatements usually do not significantly affect corporate performance, so the core restatement and non-core restatement should have different influence on audit fees, so we think that accounting firms charge higher audit fees over the companies with core financial restatement than those with non-core financial restatement. The conclusions above are demonstrated by the empirical tests.This thesis can be divided into six parts:The first part is introduction. This section introduces the research background the main research contents and research methods, as well as research significance and of this thesis.The second part is the present situation of research. This section summarizes the previously related literatures of financial restatement, the factors that influence audit fees and their relationship.The third part is analysis of theory and hypotheses of research. Firstly, it explains the concepts of financial restatement and audit fees, on the basis of the organizational rationality theory and the risk aversion tendencies of accounting firms, it analyzes the connection of audit risk and financial restatement, and the relations between audit fees and financial restatement. Secondly, the thesis comes up with the research hypotheses based on analysis.The fourth part is the design of research. It explains data sources and sample-selecting process in details and introduces models and variables.The fifth part is the results and analysis of research. It explains the results of empirical tests, and illustrates that whether financial restatement occurs or not has a great influence on audit fees, accounting firms always charge higher audit fees for the companies which have financial restatements. The nature of the financial restatements can also affect audit fees, accounting firms always charge higher audit fees over the companies with core financial restatements.The sixth part is about research conclusion and suggestions. It concludes the results of the analysis of empirical tests and proposes that we should improve the completion of the internal mechanism of companies and perfection of the external policy of market, and points out limitations of this thesis and puts forward future trends of research.The main contribution of this paper is, it focuses on the connection of financial restatement and audit fees from the view of external audit, which is a great breakthrough, not only explore the research of financial restatement with external audit, but explore the research of audit fees with financial restatement. Besides, the thesis explores their relationship for the first time from two difference views, the vertical view and the horizontal view, which is quite meaningful and provide direct empirical evidence for accounting firms to choose their audit pricing strategy, risk strategy, and play well with the management of the risk they face.