Study On The Relationship Between Accruals And Audit Opinions Of Listed Companies In China

Eamings quality is the most important concern to investors when making decisions.Accounting earnings includes both cash profits and accrued profits under the accrual basis, so the accruals quality determines the quality of earnings largely.But investors are external information users,they can’t understand the company’s earnings quality through the standard formatted financial statements fully and accurately.So it is necessary that CPA identify the quality of financial statements of listed companies and deliver reliable financial information to the investors and other users of the financial information by audit report.The paper examines the relationship between accruals and audit opinions. Our sample period is from 2005 to 2012.We sequentially investigate the relationship between audit opinions and discretionary—accruals, accruals quality and the persistence of accruals by the method of logistic regression and linear regression.We mainly use Eli Bartov(2000)’s analysis framework and adopt the method of combining theoretical analysis and empirical test.In empirical research the cash flow method is used to measure total accrued,we divided the accruals into liquid accruals and illiquid accruals so that measuring the quality of the listed company’s accruals. The empirical results show that there is a significant positive correlation between accruals and audit opinions.We find that the persistence of accruals of "standard opinion group" is higher than the "non-standard opinion group".This means the companies are easily received non-standard audit opinion which persistence of accruals is low.This paper provides a new perspective for CPA to identify whether industries have manipulate the earnings and to improve the quality of audit.Accruals quality is an evaluation index of the listed company so the investors can obtain the information of accruals quality from the financial statement and assess listed companies to invest stocks.This paper also provides an effective regulatory pathway for regulators such as CSRC, if the method to measure accruals quality is known by everyone,industry’s managements have to reduce earnings manipulation to improve the reliability of financial reporting.