财务、会计seminar第一百四十七期讲座

题目:The Impact of Client Earnings Management Capability on Audit Pricing  – The   Case of Variable Interest Entities

 

演讲者:Winnie S. C. Leung   assistant professor            

         The University of Hong  Kong

 

时间:20161230日(周)上午 1000 - 11:30

 

地点:嘉庚二 205

 

主持人:郑祯 助理教授

 

者:对会计、财务研究有兴趣的师生

 

简介:

 This paper investigates how auditors respond, in terms of their  pricing, to a reduction of clients’ earnings management capability upon the  implementation of FIN 46R “Consolidation of Variable Interest Entities” in year  2003. The accounting standard mandatorily requires firms to consolidate the  performance of variable interest entities (VIEs) under their control. These  entities (also known as special purpose entities/vehicles SPEs/SPVs) can no  longer be off-balance sheet and managers’ capability in using these entities for  manipulating earnings is substantially constrained. We find that auditors have  incorporated the misreporting risk of VIEs into their pricing in general. Firms  controlled one or more VIEs have higher audit pricing than firms without  controlling any VIEs. But after the adoption of FIN 46R, the positive  relationship between VIE and audit pricing becomes much less pronounced. This  result concurs with the view that auditors react favorably by reducing their  audit pricing when their clients’ earnings management capability is weakened.  And this finding is mainly driven by those good firms which establish VIEs for  valid business purposes. Our results also show that for firms with a higher  probability of using VIE as an earnings manipulation vehicle pre-FIN 46R (“bad  firms”), they have no significant drop in audit pricing even after they have  fully complied with the mandatory requirement of consolidating their VIEs. This  provides evidence that a reduction in clients’ earnings management capability  does not necessarily lead to a drop in audit fees. Auditors are able to  differentiate the bad firms upon implementation of FIN 46R. They realize that  these bad firms have higher propensity to use other earnings management tactics  for achieving their opportunistic goals in the future. Foreseeing that the  misreporting risk of these client firms remains high, they keep charging them a  risk premium and thus audit fees do not drop after FIN 46R.