Abnormal Traits Of Suppliers/Customers,Earnings Management And Audit Decisions

Earnings management is a prevailing phenomenon in practice and a highly-discussed academic research field.Earnings management combined with internal and external corporate governance environment,taxation,supervision,principle revolutions topics has formulated plenty of research achievements.Growing concern has been raised on public companies' earnings management activities through daily transactions via its' relations with primary suppliers and customers.Existing researches suggest that the concentration of supply chain is positively correlated with the earnings management behavior of listed companies.Existing researches mainly focus on the description of the concentration rate of sales and purchase scale,few explore the correlation from the perspective of the traits of suppliers and customers themselves.Earnings management has a direct impact on the accuracy of financial reports.Auditors,acting as an external independent party,express opinions on the fairness of financial statements.Investors,then make decisions basing on the audited financial statements.In extreme cases,malignant earnings management may lead to fraud.Scandals like Enron and some recent events are examples in reality.Existing studies imply that earnings management lead to increased audit risk.Most studies have shown that under modern risk-oriented auditing,auditors consider audit risks arising from earnings management and address them by increasing audit fees or issuing non-standard opinions.In this thesis,the A-share companies listed in Shanghai and Shenzhen stock exchanges were taken as the research objects,and the financial data,auditing data and corporate governance data of our sample companies from 2014 to 2018 were collected through CSMAR database.The registered capital and the date of setup of the top five suppliers/customers were manually collected and summarized.Then we defined variables:(1)the abnormal capital trait of suppliers/customers(top five suppliers' or top five customers' total transaction scale/ their registered capital,then taking natural logarithms)(2)the abnormal age trait of suppliers/customers(year interval between the date of setup and the balance sheet date of trading year,then taking natural logarithms).Using the modified Jones model and Roychowdhury model to regress,the regression residuals were the value of these two types of earnings management.Then,we used the abnormal traits of the top five suppliers/customers and earnings management for multiple linear regression analysis.Secondly,we empirically tested the relations between the expected excess earnings management determined by the abnormal traits of suppliers/customers and audit fees/audit opinions.The results demonstrated that(1)the abnormal traits of suppliers/customers are more likely to lead to real activity earnings management.The age trait of customers is negatively correlated with accruals and real earnings management of listed companies.The shorter the age trait,the higher the degree of accruals and real earnings management.The capital trait of customers and its of suppliers are positively correlated with the real earnings management of listed companies.The bigger the capital trait,the higher the degree of real earnings management.(2)lower degree of industry competition has a diminishing moderating effect on the positive correlation between the capital trait of suppliers and the real earnings management of listed companies.(3)Excess earnings management expected by the age trait of customers,the capital trait of customers and suppliers is significantly positively correlated with audit fees.Big4 has an enhanced moderating effect on the positive correlation between the capital trait of customers and suppliers.There is a significant positive correlation between the excess earning management(expected and determined by the capital trait of customers and suppliers)and audit opinions.The abnormal traits of the top five suppliers/customers of listed companies lead to a higher earnings management risk,which is a deduction of the quality of accounting information.Earnings management risk lead to a higher audit risk.Under modern riskoriented auditing,auditors reduce risk by implementing more audit procedures,charging more,or issuing non-standard opinions.This thesis has proved that auditors respond to excess earnings management risks expected and determined by suppliers/customers abnormal traits in their decisions.Risk-oriented audit should be based on the supply chain,which is more conducive to understanding the logic of the overall earnings management of listed companies.Secondly,this thesis confirms the necessity of disclosing the names and the transaction scale and any other detail information of the top five suppliers/customers,of which are the stipulations that regulators enforce listed companies to do.Finally,this thesis makes up for the vacancy of the existing researches to some extent and contains certain theoretical and practical significance.