An analysis of quasi-qualification, modified auditor opinions and special treatment status on China's Shenzhen market

Abstract

The development of accounting, auditing and capital markets in China were an integral component of China's economic reforms; auditing was regarded as being critically important to achieving the desired policy objective of delivering a market economy (Yang and Yang, 1998). This article examines the quasi-qualification hypothesis and tests whether investors valued the introduction of Special Treatment (ST) status for firms in 1998. Our empirical analysis fails to find significant support for the quasi-qualification hypothesis. In contrast, it appears that the issuance of ST status was valued by investors; the issuance of ST status led investors to discriminate between firms.

Notes

¹ CICPA Auditing Standard Committee, 1996, p. 211.

² http://www.securitiestimes.com.cn

³ The major source for the published financial reports from which the qualified audit opinions were identified, was China Securities Information Library (1990–1999) which was jointly published by China Remin University Press and Bejing Jetech Computer Technologies Company Ltd. The accuracy of the qualified audit opinion was cross-checked with three internet sites, http://www.p5w.net, http://www.cnlist.com and http://stock.cs.com.cn/stock/

⁴ Of the 14 firms deleted five fell into the unqualified with explanatory paragraphs category, seven in qualified and two in disclaimer.