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Auditors' going Concern Reporting in the pre- and post-bankruptcy Law Eras: Chinese Affiliates of Big 4 Versus Local Auditors

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  • Mo, Phyllis L.L.
  • Rui, Oliver M.
  • Wu, Xi

Abstract

Unlike the situation in most developed countries, before the enactment of China's 2006 Bankruptcy Law it was difficult for Chinese-listed companies, which were mostly government owned, to declare bankruptcy. Our analysis of a sample of Chinese financially-distressed companies from 2001 to 2010 reveals that the Chinese affiliates of Big 4 auditors had a higher propensity to issue going concern (GC) reports than local auditors not only in the post-law period, but also in the pre-law period. This finding suggests that Big 4 auditors had incentives to maintain their reputations even when the clients' bankruptcy risk was low. We also find that there was a significant increase in local top-10 auditors' GC reporting propensity in the post-law period, which is consistent with the notion that the increased litigation/regulation risk due to the enactment of Bankruptcy Law has an effect on local large auditors.

Suggested Citation

  • Mo, Phyllis L.L. & Rui, Oliver M. & Wu, Xi, 2015. "Auditors' going Concern Reporting in the pre- and post-bankruptcy Law Eras: Chinese Affiliates of Big 4 Versus Local Auditors," The International Journal of Accounting, Elsevier, vol. 50(1), pages 1-30.
    • Handle: RePEc:eee:accoun:v:50:y:2015:i:1:p:1-30
    DOI: 10.1016/j.intacc.2014.12.005
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    Cited by:

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    2. Agustín J. Sánchez-Medina & Félix Blázquez-Santana & Jesús B. Alonso, 2019. "Do Auditors Reflect the True Image of the Company Contrary to the Clients’ Interests? An Artificial Intelligence Approach," Journal of Business Ethics, Springer, vol. 155(2), pages 529-545, March.
    3. Yongliang Wu & Zihui Li & Min Zhang & Shengbao Zhai, 2023. "Auditor Assignments and Audit Quality," Australian Accounting Review, CPA Australia, vol. 33(2), pages 160-187, June.
    4. Ji, Xu-dong & Lu, Wei & Qu, Wen, 2017. "Voluntary Disclosure of Internal Control Weakness and Earnings Quality: Evidence From China," The International Journal of Accounting, Elsevier, vol. 52(1), pages 27-44.
    5. Sammy Xiaoyan Ying & Chris Patel & Aeson Luiz Dela Cruz, 2023. "The influence of partners' known preferences on auditors' sceptical judgements: The moderating role of perceived social influence pressure," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3193-3215, September.
    6. Liu, Guoping & Sun, Jerry, 2019. "Did the SEC administrative proceedings against Chinese auditors affect audit quality?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 37(C).
    7. Pan, Xiaofei & Tian, Gary Gang, 2016. "Family control and loan collateral: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 67(C), pages 53-68.

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    More about this item

    Keywords

    Bankruptcy Law; Chinese affiliates of Big 4 auditors; Local auditors; Going concern opinions;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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