Research On Relationship Between Financial Restatement And Audit Risk

In recent years, the intensified phenomenon of the financial restatement lead to incurred audit litigation for CPA. The audit litigation is the max situation of audit risk. Audit risk may come from the CPA, may be from the audited company, also may from the information user, but often only CPA bear the audit risk. Therefore, from the perspective of Certified Public Accountants, how to control audit risk is the urgent problem. This passage studies its relationship with audit risk from the perspective of financial restatements. In the theoretical part, introduced the concept of financial restatements and the motivation of financial restatements first, and then introduced the concept of audit risk and audit risk factors. In laying a theoretical foundation, this article study of the audit risk and the relationship between financial restatements from the perspective of game theory, in the part of game theory, first use prisoner's dilemma explains a phenomenon that the financial restatements intensified, but the CPA gives more and more unqualified opinion. Then the author use the mathematical principle to establish a game model to study the relationship between financial restatement and audit risk, get an equation. From this equation, can get a conclusion that greater the amount of inflated profits which leads by financial restatements, the greater the audit risk is. In order to study better, the author introduces a third party as a game body, dynamic a tripartite equilibrium of game theory. In the empirical part, the author collected all the financial restatement samples which come from the Shanghai Stock Exchange and Shenzhen Stock Exchange of the past three consecutive years by hand and innovative use abnormal audit fees instead of audit risk to hold the regression test. In the empirical part, the author uses two main models to test. The first model is the normal audit fee estimation model, abnormal audit fees is the result actually paid audit fees by the company minus the normal audit fee. To eliminate the impact of the region, the normal audit fee estimation model divided by place as the Shanghai Stock Exchange Shenzhen Stock Exchange. The second model, the risk of financial restatements and audit multiple regression model, taking into account the positive and negative profits caused by financial restatement and positive and negative abnormal audit fees, the author groups the samples in four groups to do the regression testing, the result is that, amount of the profit caused by financial restatement the greater the risk the greater. This conclusion confirms with the game theory.