The Game Theory Analysis Of Accounting Information Distortion

Accounting Information Distortion (AID) is becoming more and more severe these days. It has came to the extent where has influenced the normal developing pace of our economy. In this paper, to describe the critical problem, we analyze the current situation of Accounting Information Distortion in Chinese Capital Market, which contains some case studies, such as Penalty notices made by China Securities Regulatory Commission(CSRC). Then, we introduce theories on accounting information, AID, game theory and game theory of accounting information.From the Accounting Oversight perspective, we analyze the scope of AID by building a game model, trying to explore the influencing factors on AID. Accounting Oversight in this paper means internal Oversight, public Oversight, legal Oversight.We employ bi-party game in internal oversight set. When we investigate the relation between accountants and management, our results indicate that internal oversight is not an efficient oversight approach. It is just an aspect of internal control. For the owner of the corporate, there is little chance to oversight the financial fraud of management by inviting accountants, because either the management or accountants are on the same boat. We use a dynamic complete information game model in analyzing public oversight. We inquiry the reason how a tri-party oversight mechanism, which includes owners, the management and CPAs, change into a bi-party mechanism and introduce concepts of complete information and Threatening problems. Analyzing the pressure of CPAs and the management threatening of changing CPA firms, we notice that it is impossible for CPAs to fulfill their oversight duty in bi-party situation. We also give solutions to these problems. In government oversight situation, we build a game model from different perspective, such as maximization of the corporation and the management. We also conclude some useful advises on government oversight. At the end of this chapter, we analyze the investor behaviors. If the investor benefit from the fraud financial report, they will ignore this kind of fraud, even be part of it.Finally, we propose a set of suggestions, which include enhancing relative laws, building a more comprehensive accounting standard, creating a better Corporate Governance Mechanism, reinforcing the internal control, and improving the moral standard of accountants.