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Accounting restatements and audit quality in China

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  • Jiang, Haiyan
  • Habib, Ahsan
  • Zhou, Donghua

Abstract

This paper examines the effect of audit quality on accounting restatements in China. Evidence on the determinants and consequences of accounting restatements in emerging markets is scant, although these countries are more vulnerable to financial report manipulation and subsequent restatements. For accounting restatement analysis we regress non-cash flow restatement observations and cash flow restatement observations on audit quality and restatement–audit quality interaction variables. Earnings manipulation increases the likelihood of non-cash flow restatement observations, but high quality audit constrains this effect. However, no such evidence is found for cash flow restatements.

Suggested Citation

  • Jiang, Haiyan & Habib, Ahsan & Zhou, Donghua, 2015. "Accounting restatements and audit quality in China," Advances in accounting, Elsevier, vol. 31(1), pages 125-135.
    • Handle: RePEc:eee:advacc:v:31:y:2015:i:1:p:125-135
    DOI: 10.1016/j.adiac.2015.03.014
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    2. Bryan K. Church & Narisa Tianjing Dai & Xi (Jason) Kuang & Xuejiao Liu, 2020. "The Role of Auditor Narcissism in Auditor–Client Negotiations: Evidence from China," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1756-1787, September.
    3. CAO, Ning & McGUINNESS, Paul B. & XI, Chao, 2021. "Does securities enforcement improve disclosure quality? An examination of Chinese listed companies' restatement activities," Journal of Corporate Finance, Elsevier, vol. 67(C).
    4. Patrick Velte, 2023. "The impact of external auditors on firms’ financial restatements: a review of archival studies and implications for future research," Management Review Quarterly, Springer, vol. 73(3), pages 959-985, September.
    5. Andreea Claudia CRUCEAN, 2020. "A Literature Review on the Auditor’s Independence Between Threats and Safeguards," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 1(7), pages 64-72, July.

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