The Influence Of The Equity Pledge Of Major Shareholders On The Auditors’ Decision Making

As an emerging financing method in the capital market,equity pledge has been sought after by listed companies in China because of its simplicity and speed.Although the pledge of shares has eased the financial pressure of the controlling shareholders to a certain extent,the ensuing risks have also received widespread attention.Encroachment on the interests of controlling shareholders and transfer of control are also commonplace.In recent years,the negative impact of equity pledging business has become increasingly prominent and has come under the scrutiny of external regulators,while the auditors who perform external supervision of this business have also become increasingly concerned.Therefore,studies on whether auditors pay attention to the risks and effects of controlling shareholders’ equity pledges when auditing companies’ financial statements,the relationship between controlling shareholders’ equity pledges and auditors’ decisions,the identification and assessment of audit risks,and audit results have received extensive attention from the academic community.The current research on the relationship between controlling shareholders’ equity pledges and auditors is mainly carried out in empirical studies,and there is a lack of evidence of actual cases.This paper uses the existing empirical findings and selects ~*ST Bikang,which has frequent and high percentage of controlling shareholders’ equity pledges,as a case company for the study.Therefore,this paper intends to examine the path of influence of controlling shareholders’ shareholding pledges on auditors’ decisions,and to analyse it in the context of specific company examples.The idea behind this paper is to construct a theoretical analytical framework for this paper based on principal-agent theory,information asymmetry,privity of control,signalling and modern risk-based audit theory.Firstly,the history of equity pledges of ~*ST Bikang and the audit of the previous years are sorted out.Secondly,A fuzzy integrated evaluation system was introduced to assess the audit risk of the case company and to analyse specifically the audit risk due to the controlling shareholder’s shareholding pledge in terms of both material misstatement risk and inspection risk.Further,the paper explores the auditor’s response in the audit process,the audit opinion issued and the audit fees charged,and also selects comparable companies of the case company but has not performed equity pledges for comparative analysis,and finally concludes the impact of controlling shareholders’ equity pledges on the auditor’s decision.Based on the results of this paper,it provides a more typical case for auditors who subsequently audit companies with controlling shareholders’ equity pledges to help them find the right audit trail and reduce audit risks.In addition,companies in the same industry with equity pledges play a certain role in warning,relevant companies should pay attention to the changes in equity pledges in a timely manner,and improve the disclosure of information standard requirements.It also reveals that small and medium-sized investors should pay attention to the announcements disclosed by the company regarding the pledge of shares and maintain a cautious attitude when investing,and also use the information disclosed in the audit report to make a reasonable judgment on the merits of the pledge of the controlling shareholder’s shares.