Auditors Under Fire: The Association Between Audit Errors and the Career Setbacks of Individual Auditors

• 成果类型: Article
• 署名作者: Chen, Kevin C. W.; Chen, Tai-yuan; Han, Weifang; Yuan, Hongqi
• 署名单位: Hong Kong University of Science & Technology; Shanghai University of Finance & Economics; Fudan University
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12399
• 发表日期: 2022
• 页码: 853-900
• 关键词: economic consequences; market consequences; earnings quality; determinants; RESTATEMENTS; COOPERATION; COMPETITION; PUNISHMENT; inference; trust

摘要

This paper examines whether and how individual auditors are disciplined for audit errors. Taking advantage of the long history of auditor identity data from China, we find that signing auditors with client restatements are likely to lose the privilege of signing the audit reports of public clients. However, auditors can avoid this consequence by issuing a modified audit opinion to warn of the potential misstatement. We show that auditors are more likely to bedisciplined when their firms operate in less concentrated audit markets. Finally, we find positive outcomes from the disciplinary action of the audit firms. Firms that discipline their auditors for restatements have a larger decrease in the rate of client restatements and a larger increase in market share, compared to nondisciplining firms. Their clients have a higher earnings response coefficient after the disciplinary action. In summary, our results suggest that individual auditors in China can face career setbacks when they produce poor quality audits.