A Study Of Auditor Reporting Behavior Based On Audit Risk Theory: Some Empirical Evidence From Chinese Stock Market

The purpose of this paper is to investigate theoretically and empirically how a variety of audit risk factors interacting with situational factors affect simultaneously auditor propensity to issue qualified audit opinions in China. It is the first paper to do so comprehensively for the systemic structure in risk factors and two different viewpoints of audit report types.The audit report is the result of expert judgments and economic trade-offs that arises in the two stages of audit opinion decision. Firstly, this paper investigates actual practicing efficiency of the legal liability and reputation mechanisms in audit market. Secondly, by incorporating the audit risk theory with result of content analysis of the qualified audit reports between 2001 and 2005, this paper extends existing audit opinion models to test the hypothesis that various types of risk factors such as the audit process risk factors and independence risk factors may influence audit opinion decision differently as they have distinct incentives under a given institutional setting. The results indicate that client business risk factors play the most important role in auditor opinion decision rather than financial reports quality, and auditor independence in fact is evidently compromised. The results are consistent with the present risk circumstances against auditors where there is absent of litigation risk along with invalid audit quality inspection of China Securities Regulatory Commission(CSRC), as well as the function of reputation mechanism does not perform well at the same time, which mean the safeguards are still insufficient against the independence threats during audit process. Furthermore, this paper also provides evidence on the performance of auditor materiality judgments, finding out that auditor judgments show little consistency in either risk factors or materiality levels. Above all evidence would predicate poor information content and low valuation of audit reports in China.