Auditors' unqualified opinions on internal controls and accrual quality

Liuchuang Li, Gaoliang Tian and Baolei Qi

Nankai Business Review International, 2012, vol. 3, issue 4, 332-353

Abstract: Purpose - The purpose of this study is to examine whether auditor's unqualified opinion on internal control (ARIC) is a powerful proxy for the effectiveness of internal control in Chinese context. A rich body of research conducts their designs on an assumption that companies have more effectiveness of internal controls if they disclose ARICs. This study argues that the ARICs are not always reliable, because audit market is well characterized by excessive competition and market supervision is poorer in China compared to developed countries. Design/methodology/approach - The study uses 2008 and 2009 years Chinese listed‐firms data and the Tobit regression to test the relationship between ARIC and accrual quality. The paper employs the Heckman model for self‐selection bias, which are possibly introduced by choice in disclosing ARICs. Findings - The paper finds that firms disclose ARICs do not report lower abnormal accruals relative the non‐ARIC firms, and firms with ARICs issued by dominant auditors show more reliable accruals relative to non‐ARIC firms and firms that disclose ARICs but fail to be issued by dominant auditors. The results are robust to additional accrual quality measure, additional audit quality measure, and the correction of self‐selection bias by using the inverse Millo ratio approach. Originality/value - The results suggest that implementing Chinese‐SOX could be facilitated by improving audit quality.

Keywords: Chinese‐SOX; Internal control; Accrual quality; Audit quality; China; Auditing (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:nbripp:v:3:y:2012:i:4:p:332-353

DOI: 10.1108/20408741211283719

Access Statistics for this article

Nankai Business Review International is currently edited by Dr Xuexiu Wang and Professor Li Wei'an

More articles in Nankai Business Review International from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().