Abstract
This study examines whether auditor opinions are affected by political and economic influences from governments. We use auditor locality (local versus non-local) to capture such influences from local governments in China. Based on data from China's stock markets for the period 1996-2002, we find that local auditors, who have greater economic dependence on local clients and are subject to more political influence from local governments than non-local auditors, are inclined to report favorably on local government-owned companies to mitigate probable economic losses. Moreover, companies with qualified opinions are more likely to switch from a non-local auditor to a local auditor than companies with unqualified opinions. Contrary to some prior studies, we find that in China's political environment, local government-owned companies that switched from a non-local auditor to a local auditor after receiving a qualified opinion can succeed in opinion shopping.
| Original language | English |
|---|---|
| Pages (from-to) | 21-48 |
| Number of pages | 28 |
| Journal | Review of Accounting Studies |
| Volume | 11 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 1 Mar 2006 |
Bibliographical note
We thank Mark DeFond, Michael Firth, Jere Francis, William Shafer and Dan Si-munic for their reviews of the earlier versions of the paper. We are grateful to Maureen McNichols (the Editor), two anonymous referees, and participants at the Asian Pacific Conference on International Accounting Issues, Los Angeles, the Academy of International Business Meeting, Shanghai, and the Department of Accounting research workshop at National Taiwan University for their helpful comments and suggestions.Funding
Financial supports from Lingnan University (funding ref. RES200/BUS001-4) and The Hong Kong Polytechnic University (research grant no. A-PC 32) are gratefully acknowledged.
Keywords
- Audit qualifications
- Auditor locality
- Auditor switches
- Economic dependence
- Political influence