A Case Study On Chaori Solar’s Modified Audit Reports

In stock market, because of the information asymmetry between investors and company,most of investors need to identify the reliability of financial report of a listed company with the help of audit report that issued by CPA. Once a modified opinion audit report has been issued by CPA, it means less reliable of the financial report on usual, thus investors always have serious concern of messages behind the modified audit report. Chaori Solar have received CPA’s modified audit reports during 2011~2013, the private owned nature and the macro environment it faced both reflected characters of some small and medium-sized listed companies in China. Base on the case of Chaori Solar, this paper analyze and interpret the factors that effect on CPA’s modified audit report, and summarize experiences from it. Other from existing auditing case studies from China that mainly focus on problems like financial fraud, auditing failure and CPA fraud, the purpose of this paper are to find answers about why CPA issued modified audit report towards Chaori Solar, and did auditor switching and audit fees increasing impacted on CPA’s opinion.At first, this paper, summarizes achievements of domestic and foreign studies about influencing factors of modified audit report, for guiding direction to case study. Next,introduces theoretical basis of audit report, to provide theoretical support for case study. Then,describes the case of Chaori Solar from both the background of the industry and itself, and the situation of its modified audit report. Then, conducts detailed analysis against problems from its financial report, internal control, corporate governance, auditing matters and horizontal comparison. The result of analysis reveals that, immediate causes of CPA issued modified audit report are come from financial qualities and internal control problems, internal cause is concerning adverse effects that brings from a sole majority shareholder to the corporate governance, and auditor switching and audit fees increasing did not change CPA’s opinion. At last, the paper draws inspiration from the case, if all of company, CPA and investors could learn something from it, that would be beneficial to improve the financial quality of listed companies, the quality of auditing, the quality of investors, consequently to accelerate healthy development of stock market.