The Impact Of Audit Opinions On The Earnings Information Content

In order to ensure the information quality of financial statements published by listed companies, it is necessary to conduct independent audit. The issuance of audit opinions, especially modified opinions, plays an important role in judging the authenticity and legality of the financial statements published by listed companies. It's the Securities Regulatory Authorities and the stock investor's psychological expectations that the audit opinions are standard. So the modified audit opinions of the financial statements issued by listed companies actually give bad news to the capital market. Further more, the modified audit opinions actually mean that there are profits on paper in the listed company's financial statements. When making their invest decisions, the stock investors will also take the bad news into account. After getting this information, the rational investors will not blindly believe the accounting data of the financial statements. In order to confirm the actual earnings of the company and make the proper decisions, the investors will connect the accounting data to the audit opinions. Then the investors will take actions according to the adjusted data, and the stock prices of the listed companies change. This means that audit opinions can affect the information content of the earnings. The purpose of this article is to confirm the impact of audit opinions on the capital market's response to quarterly earnings announcements.The overseas studies of earnings information content can be divided into two major categories. The first one is the studies that earnings contain information or not, and the second one is the studies of the impact factors on the earnings information content. From the review of the overseas literature, we can see that the study method improved incessantly and the deepness of the study deepened ceaselessly. But the studies of earnings information content in China only remain in earnings containing information or not. Many impact factors on the earnings information have not been dealt with.Basing on the comparison and evaluation of the literature, this paper selected a sample of China's listed companies which own A shares. Using the abnormal return and regressive analysis method, we studied how the audit opinions influence the information content of accounting earnings. This article makes up the short of studies of the impact factors on the earnings information content in China. According to the characters of the listed companies in China, we also added the impact of the corporation governance structure in the empirical analysis. So the analyses of this paper are much close to the status of the listed companies in China.In the theory analysis and study hypothesis section, we depicted some theories in the first. The theories contain the produce of audit and Commission-Agency Theory, the need of audit and Dissymmetrical Information Theory, the market reaction to the audit opinions and Signal Transfer Theory. Then we brought forward two hypotheses as follow:Hypothesis1: In the year when the modified opinions are issued, the quarterly financial statement's earnings information content is deeper than the matching year's earnings information content. This means that compare to the former year (year T-1), the modified opinions issued year's (year T) earnings information content is less.Hypothesis2: Compare to the standard audit opinions with emphatic paragraph, other modified audit opinions affect quarterly earnings information content much more.In order to study the impact of audit opinions on the earnings information content, the sample companies of this paper were issued modified audit opinions in year T and standard audit opinions in year T-1. After a series of sample selection process, we got the final sample of 135 companies. In the study design, we elaborated the selection of study method, the choice of window, the calculation method of unexpected earnings, the calculation method of cumulative abnormal returns, the design of other variables and the setting of the model.From the graph analysis, T test analysis and multi-regression analysis method, we have drawn such conclusions in the empirical analysis: (1) Compare to the standard audit opinions, the issuance of modified audit opinions can decrease the company's earnings response coefficient signally. This means that the audit opinions are signals in the stock market, and they can transfer some information to the investors and other profit correlative persons. And the investors also can make the proper decision on account of the audit opinions.(2)Standard audit opinions with emphatic paragraph are different from other modified audit opinions. They can't decrease the earnings response coefficient signally. This means that the investors can distinguish different kinds of audit opinions, and they can also make corresponding reaction according to them. We can see from the empirical analysis that the stock investors pay attention to both the earnings and the audit opinions. This means that the stock investors should connect the financial information to the audit opinions to confirm the company's real earnings, so the quality of information published by listed company needs to be improved. Because the independent audit has some internal restrictions, the Securities Regulatory Authorities should perfect the correlative rule, increase the management of the financial information disclosure system, improve the quality of information published by listed company, enhance the authenticity of the financial information, and solve the problems of information disclosure in the end.