A political-economic analysis of auditor reporting and auditor switches

Koon Hung CHAN, Zhenpin, Kenny LIN, Lai Lan, Phyllis MO

Research output: Journal PublicationsJournal Article (refereed)

118 Citations (Scopus)

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 languageEnglish
Pages (from-to)21-48
Number of pages28
JournalReview of Accounting Studies
Volume11
Issue number1
DOIs
Publication statusPublished - 1 Mar 2006

Keywords

  • Audit qualifications
  • Auditor locality
  • Auditor switches
  • Economic dependence
  • Political influence

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