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：2016年12月30日（周五）上午 10：00 - 11:30
地点：嘉庚二 205
主持人：郑祯 助理教授
参 加 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.