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- Title
Financial Statement Frauds and Auditor Sanctions: An Analysis of Enforcement Actions in China.
- Authors
Firth, Michael; Phyllis L. L. Mo; Raymond M. K. Wong
- Abstract
The rising tide of corporate scandals and audit failures has shocked the public, and the integrity of auditors is being increasingly questioned. It is crucial for auditors and regulators to understand the main causes of audit failure and devise preventive measures accordingly. This study analyzes enforcement actions issued by the China Securities Regulatory Commission against auditors in respect of fraudulent financial reporting committed by listed companies in China. We find that auditors are more likely to be sanctioned by the regulators for failing to detect and report material misstatement frauds rather than disclosure frauds. Further analysis of the material misstatements indicates that auditors are more likely to be sanctioned for failing to detect and report revenue-related frauds rather than assets-related frauds. In sum, our results suggest that regulators believe auditors have the responsibility to detect and report frauds that are egregious, transaction-based, and related to accounting earnings. The results contribute to our knowledge of auditors' responsibilities for detecting frauds as perceived by regulators.
- Subjects
CHINA; FINANCIAL statements; FRAUD; CORPORATE corruption; CHINA. Securities Regulatory Commission; SCANDALS; AUDITOR-client relationships; ACCOUNTING; PUBLIC opinion; SOCIAL psychology; ECONOMICS
- Publication
Journal of Business Ethics, 2005, Vol 62, Issue 4, p367
- ISSN
0167-4544
- Publication type
Article
- DOI
10.1007/s10551-005-0542-4