Should The Listed Companies’ Seeking For Second Audit Opinion Be Allowed

Because of the information asymmetry between the company management and investors,it is difficult for investors to judge the authenticity of the financial information disclosed by the company.Therefore,it is necessary to employ an independent third-party organization to audit and issue independent opinion on the financial reports prepared by the company management.Financial reports audited by certified public accountants have higher credibility,and their audit opinion will also have an important impact on the decision-making of investors,creditors and other information users.However,China’s capital market is still not mature,the credibility of the CPA industry is insufficient,the governance structure of listed companies is imperfect,and there are frequent conflicts between the management of listed companies and auditors.At present,when the conflict between the management of listed companies and auditors occurs,there is a special manifestation: When an unclean audit opinion is issued,the listed companies may re-engage an accounting firm to audit the annual financial report and issue a second audit opinion.Listed companies seeking second audit opinions may arise from the divergence of professional judgment between management and auditors,as well as from the motivation of management to buy opinions.At present,the SFC has not explained the legitimacy of such practices,nor has it promulgated regulatory policies related to customers seeking second audit opinions.If such acts are allowed,the management of listed companies may take advantage of them to do opinions shopping,and it is difficult for investors to judge whether the first and second audit opinions are more appropriate.Moreover,for those listed companies that have obtained non-unqualified opinions,if one part of them improves the audit opinions through the second audit and the other part does not,the former undoubtedly gains speculative profits,which is contrary to the principle of fair competition.If the behavior of listed companies seeking for the second audit opinion becomes a common behavior,it will not only be unfavorable to maintain the industry credibility of CPAs,but also reduce the value of information transmission of audit opinion and increase the operating cost of listed companies.This paper explores the potential motivation of Honggao Creative Co’s hiring another auditor to re-audit the company’s 2016 financial report and obtain "standard unqualified opinions".It finds that the company faces high pressure of performance commitment in 2016 and is warned of delisting risk by Shenzhen Stock Exchange for obtaining "unable to express opinions".The company has an incentive to act opinion shopping.According to the results of the company’s second audit,the items involved in "unable to express opinions" issued by the former auditor do exist,and the company has also made pre-error corrections for many items in the financial statements.It can be seen that there is no evidence to show that the audit opinions issued by the former are inappropriate.The management’s second audit opinions are more likely to be for the improvement of adverse audit opinions purpose.In the second audit process,the company changed the audit institutions and paid 50% more audit fees than the previous audit service fees,which further indicated that the company had a higher possibility of opinion buying.The case of Honggao Creative Co.shows that allowing listed companies to seek for second audit opinions may provide them with the opportunity to act new type of opinions shopping: shopping audit opinions in the current year,and investors and regulators in the capital market do not recognize this behavior.If the management does not approve the audit opinions issued by CPA because of the difference of professional judgment,it could engage another firm to conduct a special review of the disputed matters,or change the accounting firm responsible for auditing the financial statements of the next year.Therefore,this paper requests the regulatory departments such as stock exchanges to improve the relevant laws and policies for listed companies to seek second audit opinions,and to restrict and regulate this kind of behavior.It also reminds accounting firms and CPAs to avoid undertaking such business as far as possible.