Determinants of Financial Restatements in the Listed Companies in China
This paper firstly introduces the latest Accounting Standards about financial restatement, and the current situation of financial restatement in listed company in China, then analyzes the determinants of financial restatements from company characters, own
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Abstract. This paper firstly introduces the latest Accounting Standards about financial restatement, and the current situation of financial restatement in listed company in China, then analyzes the determinants of financial restatements from company characters, ownership structure, internal governance structure and external governance, the results are as follows: the better performance of listed companies, the lower probability of financial restatement; ownership concentration is negative correlated with the probability of financial restatements; the number of independent directors is significantly positive correlated with the accounting information quality; the establishment of audit committee can reduce financial restatement; the supervision of the securities regulatory authorities can effectively reduce the financial restatement; audit by larger accounting firms can reduce financial restatement. And according to the above results, this paper gives the following suggestions for the improvement of listed company financial restatement: improve the governance structure; strengthen market supervision; perfect the relevant accounting standards, laws and regulations. Keywords: Financial restatement, ownership structure, internal governance structure, external governance.
1 Introduction In China, on February 2006, the Ministry of Finance issued Accounting Standards for Business Enterprises No.28–Changes in Accounting Policies and Estimates and Corrections of Errors, which included the definition, correction and disclosure of prior period errors. The prior period errors include calculation mistakes, mistakes in applying accounting policies, oversights or misinterpretation of facts, consequences of fraud, inventory overage, fixed asset overage, etc. An enterprise shall adopt the retrospective method to correct any important errors of prior period, however, unless it is impractical to recognize the amount of cumulative effects of the prior period error. An enterprise shall, in its notes, disclose the following information related to the correction in prior period errors: 1. The nature of the prior period errors 2. The names of the affected items and the corrected amounts in the financial statements for all prior periods presented. 3. If it is unable to make a retrospective restatement, it shall state the facts, reasons, time point of beginning the correction of the prior period error, as well as the information about the concrete correction. H. Tan (Ed.): Knowledge Discovery and Data Mining, AISC 135, pp. 725–730. springerlink.com © Springer-Verlag Berlin Heidelberg 2012
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G. Zhang
The application of Accounting Standards for Business Enterprises No.28 formally marks the establishment of the financial restatement regulations in China.
2 The Current Situation of Financial Restatement in Listed Company in China In recent years, financial restatements are becoming more and more frequent which has aroused wide concerns. At present, there are two main characters in financial restatement in listed company in China: firstl
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