Research On Audit Risk Of Telecommunications Equipment Manufacture Industry

The integration of different economies has speeded up in last decade,with the result that firms now have to compete in a wider range of markets.The fierce competition increases the pressure on management to meet earnings targets.Anecdotal evidence shows that some public firms manipulated earnings in order to meet earnings benchmarks.Manufacturing firms account for the half of the firms found misconduct in financial reports and got fined by the regulators.Hence,these firms have high auditing risk,which increase investors9 demand for high-quality auditing.Within manufacturing firms,those making communication equipment exhibit high possibility of misconduct,since they are in the technology transition stage and have high reliance on the external financing.Consequently,the auditing task becomes more complicated,which leads to high auditing risk.In this paper,I propose to examine the auditing risk of the communication equipment manufacturers listed on A-SHARE.The extant research on auditing risk mainly focuses on the average auditing risk across different industries.Little has been done on the industry-level auditing risk in manufacturing.In this paper,I combine my internship experience and the industry-specific analyses to examine the industry-level auditing risk faced by the communication equipment manufacturers,and also make some suggestions on how to improve the auditing in this industry.I mainly use the summary statistics and case study in this paper.First,I summarize and describe the industry-specific characteristics in the communication equipment manufacture,and then provide an overview of the misconduct of the communication equipment manufacturers listed in A-SHARE from 2013 to 2017.I further identify the significant auditing risk components in this industry.In the case study,I use CEC Core Cast who got fined by the regulator in 2015 due to their misconduct in financial reports as an example to explain how to improve the auditing quality and mitigate the auditing risk in the industry.In this paper,I find that the communication equipment manufacturers have high reliance on the high technology,high investments in R&D,short product life cycle,high proportion of inventory and account receivables in total assets and high concentration within the industry.Combined with the analysis of the firm misconduct,I find that the auditing risk mainly lies in the revenue recognition,depreciation,related party transaction,and R&D expenses.In the case study,I use the financial reports of CEC Core Cast in 2015 to show how managers can use their discretion to manipulate financial statements in the areas of high auditing risk,and make some suggestions on how to improve auditing quality.I believe this paper contributes to the auditing risk theory of communication equipment manufacturers and has implications on how to control the auditing risk.Specifically,I show the industry-specific auditing risk in the communication equipment manufacturers using the industry-level analyses combined with the recent change in accounting rules in this industry.This finding complements and extends the theoretical research on auditing risk.The results also have implication on how to enhance auditing risk control and improve auditing quality in future.