The Influence Of Executive Violations In Public Companies On Auditors’ Behaviors

In recent years, there are more and more pieces of news related to executive violations. Most of the executives have been punished by the supervision departments for their inappropriate behaviors. Reasons for more exposures are many. On one side, the fast development of the Internet makes people have more ways of getting information. On the other side, the laws and regulations are getting more and more amplified and are enforced more strictly. Moreover, as the construction of a clean and honest government moves forward, the anti-corruption gets executed in fact. This is also one of the reasons for more exposures of the executive violations.Executive violations reflect that the internal controls are very weak and the corporate governances have lots of problems. These institutional or executional defects give the authorities chances, time and space to manipulate the company. That’s how the management fraud happens. Moreover, the executive violations reflect that the authorities have credit problems. The authorities will manipulate the companies’accounting system by affecting the tone of the top. If authorities are lack of integrity, chances are that will lead to high risk of material misstatement of the finance report. To summarize, the authorities’violations reflect high audit risk. Although the authorities’violations may be not out of accounting matters, the auditors must pay attention to the existence of authorities’ violations while auditing the companies.Although there are some existed researches about the relationships between company violations and the auditors’ reactions, few researches focus on the relationships between the authorities’ violations and the auditors’ reactions. Most of the existed researches are focused on the companies’violations. This is diefferent from executive violations because the violation subjects are different. The companies’ violations focuse on the company, which are legal persons while the executive violations focuse on executives, which are natural persons. Even though some researches pay attention to executive violations, they focus on the stock markets. That’s to say those papers focus on the reactions of the stock markets to the executive violations. Few of them do research on the auditors’ reactions related to the executive violations. As a result, evidences are lack in reality about whether auditors will pay attention to the authorities’ violations and adjust their actions in aspects like audit fees, audit delays and audit opinions, even they are required to. This paper first does a review on relative existed researches related to executive violations and auditors’ behaviors. Then this paper chooses three aspects of auditors’ behaviors, which are types of audit opinion, the auditing fee and the auditing delay, to measure the behaviors. After that, this papered defines the specific concept ’executive violations’ used in this paper and build the models, using the samples after 2007, in which year the risk-oriented auditing approach officially established in China. Finally, this paper does some statistical analysis based on the samples, using econometrics analysis like the descriptive analysis, the correlation analysis, the multiple linear regression analysis and the robustness test.With all those preparations and analysis, this paper got its own results:(1) compared to those whose executives havn’t been punished due to violation behaviors, those whose executives have been punished during the 7 years receive fiercer audit opinions, which means the probability for them of receiving non-standard audit opinions is higher than other listed companies. Moreover, those companies pay higher audit fees than those whose executives havn’t been punished. Maybe it’s because while auditing those companies, the auditors need to do more work like add audit procedures, which will cost more efforts. So the auditors require higher audit fee is reasonable. And for the companies whose executives have been punished, their audit delays are higher than those whose executives havn’t been punished. Maybe it’s because while auditing those companies with executive violations, the auditors need to do more work, which will take more time. So it takes longer for auditors to finally issue the audit report. (2) for companies whose executives have been punished during the 7 years, compared to the years the executive violations havn’t been exposed, in the years the executive violations have been exposed the companies receive fiercer audit opinions, pay more audit fees and get more audit delays. Among the three aspects, the phenomenon of receiving non-standard audit opinions is notable, which means of low significant level in the right year getting punished and in the years that follow. The tendency of paying more audit fees is also very notable in both the right year being punished and in the years that follow. And the audit delay is remarkable in the year got punished and in the years that follow. (3) For companies with executive violations and the violations are for the personal reason, the probability of receiving non-standard audit opinions is larger than those without executive violations. And this tendency is quite notable. And from the other two aspects, the outcomes of the empirical analysis are also contrary to the expectations. The auditors didn’t become fiercer or harsher on companies whose executive violations were for company reasons either. On the contrary, they got fiercer and harsher when auditing companies whose executive violations were for personal reasons. All these three aspects are contrary to the expectations of this paper. One possible exeplanation is that, when the executive violations are out of the companies reasons, the auditors are quite sure that the internal controls or corporate governances are weak. So when they audit those companies, they have already known something and get some preparations. But if the executive violations are out of the personal reasons, the auditors will be more confused and not so sure about the companies’ conditons. So they need to do more work to know the companies better.This paper indicates that auditors will be more firm and prudent while auditing companies whose authorities are punished by supervisors, which means the audit opinions will be fiercer and so are the audit fees and audit delays. However, it seems that auditors haven’t paid enough attention to the executive violation reasons. This paper thinks that the violation reasons should draw auditors’ attention and be taken into consideration in the auditing procedure so that the auditors can design better auditing procedures to reduce their risks and improve the auditing efficiency.