Auditor human capital and financial misstatement:Evidence from China

In this study, we examine whether education, as an important component of the human capital of auditors, is related to the occurrence of financial misstatement, and investigate the moderating effect of professional experience. Using a sample of 16,651 firm-year observations from the Chinese stock market from2003 to 2014, we find that the education level of signing auditors is significantly negatively associated with the likelihood of financial misstatement, which suggests that higher education can enhance the ethics and independence of auditors and mitigate the risk of financial misstatement. In addition, professional experience attenuates the negative relation between the education level of signing auditors and financial misstatement. Our findings are also robust to a variety of sensitivity tests, and our conclusions still hold after using a two-stage OLS-logistic regression to address the endogeneity problem. Lastly, the negative effect of education level on financial misstatement holds only for 985 Project universities, low individual-level(audit-firm-level) client importance, and state-owned enterprises.

Comparison of Environmental Law Violations and Accounting Abuses by Russian Enterprises

Sustainable development requires overcoming opportunist behavior of economic entities towards environmental compartments.Another form of opportunist behavior is revealed in fraudulent financial reporting.The research objective is statistical comparison of environmental law violation against accounting abuses by Russian enterprises.A research hypothesis is put forward that companies,that violated environmental law,prepare financial reporting mostly incorrectly.An exploratory sampling from the economic entities of Russia,that violated environmental law in the course of various activities,was formed.Financial reporting of the sampling companies was analyzed by virtue of the authorial probit regression model,making it possible to reveal accounting misstatements,both overreporting and underreporting.The obtained results make it possible to assess the interrelations between the environmental law violations and financial reporting.

Do goodwill impairments affect audit opinions?Evidence from China

There has been a steady growth of goodwill impairments in the Chinese stock market since the adoption of the impairment approach in accounting.The influence of goodwill impairments on a firm’s financial position and profitability give reason to doubt its current and future performance.We examine whether auditors,as a crucial external monitor,identify the information risks of goodwill impairments and express their concerns about financial reporting quality in their audit opinions.Using a sample of firms listed on China’s Ashare market from 2007 to 2017,we test the association between goodwill impairments and the type of audit opinion received in the same financial period.Our findings are as follows.First,the probability of receiving a modified opinion increases with the amount of goodwill impairments.Second,the positive association between goodwill impairments and modified audit opinions is driven primarily by earnings management risks.Third,this positive association is more salient when auditors are industry experts and there is no auditor–client mismatch.Fourth,auditors are more sensitive to the amount of goodwill impairments than to their mere existence.Overall,we document that auditors perceive goodwill impairments as a signal of information risks and communicate their concerns to investors to avoid litigation.