【报告主题】The Reluctance to Record Audit Adjustments in SOEs:The Role of Managerial Incentives in Shaping Audit Practices
【主讲嘉宾】陈华予，美国洛约拉马利蒙特大学
【报告时间】2025年7月8日 14:00
【报告地点】会计学院206室
【内容提要】
This study investigates whether and how managerial incentives in State-Owned Enterprises (SOEs) influence the recording of audit adjustments. Using data on audit engagements of publicly traded firms in China from 2006 to 2017, we find that SOEs are significantly more likely than non-SOEs to avoid recording audit adjustments. Consistent with the notion that SOE managers face strong pressures to demonstrate regulatory compliance and that audit adjustments may signal noncompliance and deficiencies in financial reporting and internal oversight, we show that recorded audit adjustments reduce SOE CEOs’ promotion prospects. The tendency to avoid audit adjustments is more pronounced when SOEs are led by CEOs nearing the end of their careers who have stronger incentives to secure a final promotion, and when they are subject to more stringent oversight by the central government. We also find that SOEs are more likely to have no recorded audit adjustments when auditor turnover risk is high, suggesting that auditors have incentive to accommodate management needs to retain SOE clients. Furthermore, we find that SOE audits with no recorded adjustments are associated with higher audit fees and longer onsite audit time, suggesting that auditors invest effort to resolve issues preemptively. Finally, we find that SOE audits with no recorded adjustments have higher discretionary accruals and higher likelihood to issue error-related restatements, indicating that the avoidance of adjustments can undermine audit quality. Overall, our findings underscore the role of managerial incentives in shaping audit practices.