Government Audit Report and Audit Quality: Market Perception and Real Earnings Quality

• 1、School of Management and Economics
• 2、School of Management and Economics,Beijing Institute of Technology,Beijng,100081
• 3、School of Management and Economics,Beijing Institute of Techonology,Beijing,100081

Abstract：National Audit Office (NAO) has been issued audit reports since 2003. Although it is deemed as an effective tool of anti-corruption, government audit quality has been in dispute for long time. With the sample of State-holding listed companies covered by audit reports issued by NAO during 2007-2012, this paper examines how the market responsed to the reports and whether real earning quality of audited companies has been improved since they are audited. This study finds, the market responsed negatively to audit reports and post-report the earnings response coefficient of firms audited increase. Since they were audited, the accounting conservatism of the firms increased while real earnings management activities decrease. The study implies auditing conducted by NAO is acknowledged by the market and significantly improves the implicit earning quality of companies audited. Government audit reports disclose existing problem, which is different from CPA audit opinion. This study examines government audit quality from difference ways and its findings provide empirical evidence for improvement of CPA audit report which has been discussed by international auditing organizations.

Keywords： Audit Quality Earnings Response Coefficient Market Response Accounting Conservatism Real Earnings Management