Abstract: On the basis of dividing the earnings management into positive and negative earnings management according to the different directions of profit manipulation and discussing in details the nature and application scope of the positive and negative earnings management as well as their legal risk differences on the CPAs, this paper re-examines and studies the strategies for auditor choice in politically connected enterprises. The results show that either in their positive or negative earnings management the politically connected enterprises have more profit manipulation behaviors than the non-politically connected enterprises. The politically connected enterprises with negative earnings management tend to choose big auditing firms; meanwhile, the big auditing firms are much more likely to issue clear auditor opinions to their financial reports. In contrast, the politically connected enterprises with positive earnings management are more inclined to engage small auditing firms, and the small auditing firms are quite ready to provide standard auditing opinions to their financial reports.

Key words: political rent-seeking; earnings management; auditor choice