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CPA-Certificated Public Accountant, who should be loyal to his job with strong professional ethics, is supposed to give the audit opinion with his professional attitude and skill. However, it is always difficult for them to do that. Some of them even be cahoots with the company to make earnings management voluntarily, which brings huge loss to investors and destroys their investing confidence. It is not helpful for the healthy development of the security market. This paper proves that CPA (Certificated Public Accountant) has the motive to participate in earnings management, and analyzes the causality of the participation, the static and dynamic game mechanism of the participation, and results of the game. The analysis shows that main factors that make CPA involved in the profits manipulation are: Clientspsila importance to the CPA, firmpsilas term in office, and the low punishment cost. So, to avoid CPApsilas profits manipulation by making the residual accounting rule, the punishment cost of profits manipulation should be increased in the system.
Date of Conference: 10-12 Sept. 2008