Audit Risk and Articulation Errors from Different Cash Flow Disclosures : Evidence from China

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (without host publication)peer-review

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Author(s)

  • Yi Si
  • Gao-liang Tian
  • Mohan Fonseka
  • Hua Feng

Related Research Unit(s)

Detail(s)

Original languageEnglish
Publication statusPublished - 12 Aug 2015

Conference

Title2015 American Accounting Association Annual Meeting and Conference on Teaching and Learning (CTLA)
PlaceUnited States
CityChicago
Period8 - 12 August 2015

Abstract

Although FASB and IASB both prefer to disclose direct method cash flow statement, it is still under heated discussion about which it better. Using unique dataset of direct (DM) and indirect (IM) method cash flow statement from China, we investigate the contents of articulation errors between DM and estimated ones from IM and BS (balance sheet) statement. We argue that the main part of articulation errors, non-recurring items and unusual transactions may contain potential earnings manipulation and incur more litigation risk exposure for auditors in the future. We find that auditors are more likely to issue modified audit opinions (MAOs) and charge more audit fees to clients with higher absolute articulation errors, especially for big auditors and in high litigation risk regime. Furthermore, we also find that auditors who do not issue MAOs to clients with abnormal high articulation errors will get higher abnormal fees than auditors who do issue MAOs, indicating a potential opinion shopping among auditors and clients. This paper not only supports the preference of DM statement, but also has implications for countries that have already issued DM to disclose more details of articulation errors in the footnote.

Citation Format(s)

Audit Risk and Articulation Errors from Different Cash Flow Disclosures: Evidence from China. / Si, Yi; Tian, Gao-liang; Fonseka, Mohan et al.
2015. Paper presented at 2015 American Accounting Association Annual Meeting and Conference on Teaching and Learning (CTLA), Chicago, United States.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (without host publication)peer-review