Research On The Impact Of Pending Litigation And Internal Control On Audit Opinions

With the development of the economy with Chinese characteristics and the improvement of legal system,the social and legal environment that enterprises face in the process of production and operation is becoming more and more complicated,and more and more cases of litigation and arbitration are encountered during production and operation.Often,there are cases where some litigation matters have not yet been judged.This part of the litigation matters that are still in progress and not yet concluded is pending litigation.Due to the uncertainty of the outcome and impact of the pending lawsuit,the contingent liabilities generated in the future are likely to be transformed into the true liabilities of the enterprise,causing potential losses to the enterprise,and may even affect the company's ability to continue operating.The pending lawsuit signals to the outside world that the company has litigation risks.With the widespread application of modern risk-oriented auditing models,the risks and precautions that companies may have during the production and operation process have become important issues for CPAs to focus on during the audit process.Pending litigation is a special legal risk factor.Does the existence of pending litigation affect the publication of audit opinions in the process of auditing the financial statements of the company? Internal control is an important part of the company's internal governance.The quality of internal control affects the risk judgment of certified public accountants in the audit process.Will the quality of internal control have a regulating effect in the process of pending litigation affecting audit opinions? This article will analyze and study this.This article mainly uses empirical research methods to explore the relationship between pending litigation,the quality of internal control,and audit opinions.First,it summarizes the existing research literature between outstanding lawsuits,internal control quality,and audit opinions,and sorts out the main contents and deficiencies of the current research.Second,with the help of signal transmission theory,information asymmetry theory,and audit insurance theory,etc.Theoretical analysis of the relationship between the research objects,the construction of the theoretical path,and the research hypothesis are put forward.Finally,based on the 2012-2018 Shanghai and Shenzhen A-share non-financial listed companies as a sample,the logit regression model is used to empirically test pending litigation and audit The relationship between opinions and the interaction between pending lawsuits and internal control,draw textual research conclusions,propose policy recommendations for coping with the risks of pending lawsuits,and summarize the deficiencies and prospects of this research.The main research conclusions of this article are as follows:First,there is a significant positive correlation between pending lawsuits and nonstandard audit opinions.Listed companies with pending lawsuits are more likely to be issued non-standard audit opinions.At the same time,the higher the amount of pending lawsuits,the greater the possible impact on the future production and operation of the enterprise,and the easier it is for non-standard audit opinions to be issued during the audit process.Logit's empirical regression results show that whether a company has pending litigation matters and the amount of pending litigations has a significant positive correlation with non-standard audit opinions.The existence of pending litigation matters will not only bring expected economic losses,It affects the reputation of the company and even affects the company's ability to continue operating,leading to a greater risk of major misstatements in the audit of the company.CPAs are more inclined to issue non-standard audit opinions for financial reports due to due consideration.The amount of pending lawsuits represents the level of importance of pending lawsuits.The higher the proportion of pending lawsuits in the company's total assets,the more obvious the impact on the company.The results of empirical regression tests found that pending lawsuits involved The higher the amount of the complaint,the easier it is to issue non-standard audit opinions.After distinguishing the nature of property rights,it is found that state-owned enterprises are more likely to be issued non-standard audit opinions than non-state-owned enterprises.Second,after distinguishing the legal status of the company involved,it was found that,compared with the plaintiff,the non-standard audit opinion is more likely to be issued when the company involved is the defendant,and the pending lawsuit and nonstandard audit are only issued when the company involved is the defendant.Opinions have a significant positive impact.After distinguishing the types of pending lawsuits,it is found that,compared with non-economic lawsuits,listed companies that have economic lawsuits are more likely to be issued non-standard audit opinions in the annual report audit process,and pending lawsuits in economic lawsuits are audited against non-standard audits.The impact of opinions is more significant than noneconomic litigation.Third,the quality of internal control is significantly negatively related to nonstandard audit opinions.Good internal control can effectively reduce the probability of issuing non-standard audit opinions.At the same time,there is an interaction between the quality of internal control and pending lawsuits.High-quality internal control can effectively reduce the impact of pending lawsuits on non-standard audit opinions issued by certified public accountants.The better the quality of internal control,the higher the quality of internal control when an enterprise faces pending lawsuits.It is more difficult to be issued non-standard audit opinions.After distinguishing the nature of property rights,it is found that the interaction effect between internal control and pending lawsuits is more significant in non-state-owned enterprises,indicating that compared with state-owned enterprises,non-state-owned listed companies with pending lawsuits can weaken registration by improving the quality of internal control.Expression of accountants' non-standard audit opinions.The research contributions of this paper mainly include: analyzing and demonstrating the relationship between pending litigation,the quality of internal control and audit opinions,verifying the interaction between the quality of internal control and pending litigation,and testing the internal regulatory effect of internal control;from the legal status From the perspective of litigation type,the research on the impact of pending litigation on audit opinions of CPA annual report is detailed.