Auditor Disciplinary, Non-standard Audit Opinions And Audit Pricing

With the continuous development and improvement of China's market economy, demand for audit is growing constantly and the auditors attract more attentions from investors. Recently China's listed companies like the ancient Han Purple and Green Earth have burst a series of false financial scandals, more than this, some listed companies like Yinguangxia and Wanfushenke, their auditors are also punished with them. These events show that false financial reports and audit failure have aroused the attention of the relevant regulatory authorities. The auditors' disciplinary risk has been significantly improved when they provide audit services to the listed companies which issued false statements. Under normal circumstances, the public is generally considered that auditors perform due diligence when they issued modified audit opinions to unclean listed companies, because modified audit opinions transfer operational and financial risk signals of listed companies to investors and creditors, thus, auditors could clarify responsibilities and avoid risks. However, studies have shown that the more the auditors issue a qualified audit opinion the more likely to be punished. The reason is that the listed companies which get modified audit opinions often arouse the attention of the regulatory authorities. If the auditors issue improper modified audit opinions, they are also considered to be unable to fulfill their auditing duties and still have to take the blame. Then, with the increasing supervision, auditors' audit pricing strategy when they issued improper modified audit opinions is worth studying.The paper utilizes the method of combing normative and empirical research, and takes the companies that were published by SFC due to misrepresentation during 2001 to 2013 as sample to analyze the inappropriate modified audit opinions' impact on audit pricing when auditors faced a higher risk of disciplinary, and take auditor's hierarchy and nature of property rights into account at the same time. The paper found that, in the false statements published year, when auditors face a higher risk of disciplinary, the auditor charge more audit fees when they issue inappropriate modified audit opinions or when they are larger auditors. In addition, if the large auditors are punished by SFC in the future, they tend to charge more audit fees from private enterprises in the false statements published year. Based on the above findings, this paper presents proposals to improve the situation, such as intensify supervision, well-established system of civil procedure, improve auditor independence, focus on the auditor's hierarchical supervision and regulatory policy of listed companies with different properties.