An Empirical Study Of The Relationship Between Materiality Judgement And Financial Restatement

In recent years, the frequent correction of listed companies’ financial reports has challenged the credibility of accounting information, and this phenomenon has attracted wide attention of scholars. Because the domestic scholars began to study the financial restatements late, the relationship between materiality and financial restatement is not clear. Whether materiality judgment will affect financial restatement and audit fee will affect auditors’ decisions remain to be studied.This article is based on A-share listed companies in China that have corrected prior period errors and collects data of these companies from 2005 to 2014 to examine the relationship between materiality and financial restatement and the adjustment effect of audit fee. It uses the Logistic model, and dominates financial restatement as dependent variable and materiality as explanation variable to explore whether CPAs pay more attention to the errors that exceed materiality and whether the listed companies with errors exceeding materiality are more likely to be restated. What’ s more, this article introduces the audit fee as regulating variable to examine the influence of audit fee on the relationship between materiality and financial restatement. The empirical results show that CPAs pay more attention to the errors with higher percentage of the net assets and to those relate to core accounts. The results also find that auditors’ materiality judgment will be affected by audit fee.The main contribution of this research is that it not only studies the relationship between materiality and financial restatement and also explores the effect of audit fee on this relationship. This study not only enriches the related research of materiality and financial restatement, but also provides reference for regulators and standards setters.