Recognition Of Audit Opinions On Earnings Management Of Listed Companies

In July2010, the Ministry of Finance Administration for Industry and Commerce issuedthe―Circular of the General Office of the State Council forwarded the Ministry of Finance anumber of opinions on notice to accelerate the development of China’s CPA industry‖, topromote medium-sized accounting firms to adopt a special general partner organizations andour CPA bigger and stronger; Meanwhile, KPMG, Deloitte and Ernst&Young, their jointventure agreement in China expired in2012. Is the status quo of China audit quality in ahealthy state? The audit opinion largely reflects the quality of the practice of certified publicaccountants, this article research through the relationship between audit opinions and earningsmanagement to reveal the extent of Certified Public Accountant finding out the listedcompany earnings management activities, in order to understand China’s CPA the quality ofthe practice, and make recommendations on how to further improve the quality of our audit.This paper combines a method of normative and empirical research, based on theoreticalanalysis of the concept and motivation of earnings management and audit opinion, andanalyse2007-2011Shenzhen and Shanghai AB-share listed companies’ financial and auditdata by using sectional modified Jones model and the proportion of non-recurring income tototal profit index two methods to measure earnings management. Opportunistic earningsmanagement is further classified as upward earnings management and downward earningsmanagement. This paper use panel date model and logistic regression to study whether auditopinions can recognize earnings management.The expected results:(1) audit opinion can reveal earnings management behavior, thegreater the extent of earnings management company issued the greater the likelihood ofnon-standard audit opinions;(2) with respect to the decision usefulness of earningsmanagement, there is the higher probability that auditors issued non-standard audit opinionson opportunistic earnings management;(3) in opportunistic earnings management, comparedto negative earnings management, a higher degree of positive relationship between positiveearnings management and audit opinion, that certified public accountants easier to found outpositive earnings management behavior. Finally, combining the current market environmentand legal regulations and policies, this paper put forward a number of policy recommendations on how to better identify earnings management of listed companies as wellas to further improve the Certified Public Accountant’s audit practice quality.