Individual Auditor Conservatism After CSRC Sanctions

This study examines whether sanctions imposed by the China Securities Regulatory Commission (CSRC) against individual auditors result in greater auditor conservatism. Using a difference-in-differences research design, we find that clients of sanctioned individual auditors have lower discretionary ac...

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Bibliographic Details
Published in:Journal of business ethics 2016-06, Vol.136 (1), p.133-146
Main Authors: Sun, Jerry, Cahan, Steven F., Xu, Jing
Format: Article
Language:English
Subjects:
Accounting
Audit quality
Audited financial statements
Auditing
Auditing standards
Auditors
Audits
Business and Management
Business audits
Business Ethics
China
Clients
Conservatism
Control groups
Economic sanctions
Education
Ethics
Exposure drafts
Financial accounting
Financial audits
Fiscal restraint
Industry
Investments
Litigation
Management
Philosophy
Quality of Life Research
Regression analysis
Regression coefficients
Regulatory agencies
Research design
Sanctions
Securities
Securities markets
Securities Regulatory Commission-China
Variable coefficients
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Summary:This study examines whether sanctions imposed by the China Securities Regulatory Commission (CSRC) against individual auditors result in greater auditor conservatism. Using a difference-in-differences research design, we find that clients of sanctioned individual auditors have lower discretionary accruals in the post-sanction period than in the pre-sanction period when compared to a matched control group of clients audited by individual auditors who were not sanctioned. Our findings suggest that sanctions imposed by the CSRC on individual auditors can lead to improvements in audit quality by increasing the conservatism of the sanctioned auditors. That is, individual auditors are more likely to resist their clients' income-increasing accounting manipulations after being sanctioned by the CSRC.
ISSN:0167-4544
1573-0697
DOI:10.1007/s10551-014-2514-z