Research On The Impact Of Aggressive Real Earnings Management On Current And Later Audit Fees

Managers seek to influence the earnings of the report through using real earnings management,which leads to change cash flow and sacrifice the value of the company.The effect of real earnings management is more long-term than the accrued earnings management.Therefore,it is important for auditors to distinguish the way of earnings management.The thesis takes China's A-share listed companies from 2012 to 2016 as the research sample,and bases on the expected audit fee model from Houston et al.to research the impact of aggressive real earnings management on current and later audit fees,and verify whether there is a long-term effect of aggressive real earnings management on auditors' pricing behavior.The definition of “aggressive” in the thesis is the company that the level of real earnings management is in the first quarter of the current year in its industry.Besides,this thesis conducted two additional tests.According to whether companies have suspect of real earnings management and high balance sheet bloat,the thesis takes the sample into two sub-sample,to explore the different impacts of real earnings management have on different samples and verify the impact of auditors perceived business risks on auditors' pricing behavior.The results of the thesis show that there is a significant positive correlation between aggressive real earnings management and current and later audit fees,which verified the significant impact of aggressive real earnings management on auditors' pricing behavior.It can be said that the increasing in current and later audit fees is an ancillary cost of aggressive real earnings management.From the results of additional tests,the reason of the impact of real earnings management on the later audit fees,in part,is that the auditors perceived the increasing business risks,and the auditors perceived risks partly depend on the use frequency of real earnings management by customers.At the same time,the results of the thesis provide evidence on the auditor's pricing behavior: after considering the increased audit risk brought about by the real earnings management,auditors make decisions about retain customers or not.