The Effect Of Performance Compliance On Auditors' Behavior In Equity Incentives

On December 23,2016,the Ministry of Finance issued 12 Standards on Auditing for Certified Public Accountants including Communication on Key Audit Matters in Audit Reports,requiring disclosure of key audit matters in audit reports of the listed companies.The disclosure of key audit matters could provide additional information to the intended users of the financial statements so that they could have a better understanding of the companies.Meanwhile it provides a new way to study the status of exercise rights vesting performance requirements and the earnings management under the executive equity incentive plans.Through manual recording and reading,this paper collects 715 executive equity incentive plans which illustrates the requirement for the company performance of 2017 and the corresponding key audit matters in audit reports.It analyses the relationships among the exercise rights vesting performance requirements,the behavior of auditors and the level of earnings management of listed companies with a two-stage regression.The empirical analysis finds that the companies which reach the requirement for the company performance in the executive equity incentive plans have lower risk of key audit matters.Among them,companies whose financial performance goes far beyond the requirement have lower risk of key audit matters in contrast to companies that “step on the line”.Further,we found that companies “stepping on the line” have higher levels of earnings management,and auditors might be concerned about such risks.This paper explores the information content in key audit matters further,and provides a new external perspective for the research of earnings management under the executive equity incentive plans.It also provides practical examples for the manual reading of listed companies' announcement.Meanwhile this paper provides guidance for the supervision of the authority,providing public investors with a pre-judgment of the value of listed companies,which would facilitate the regulation of the behavior of listed companies further.