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The large but weakly-monitored repo market is considered to largely contribute to the recent financial crisis. By examining the deviation of end-of-quarter borrowings in the repurchase market from the quarterly average, we examine the impact of audit expertise on banks’ real activities manipulation. On the one hand, auditors are expected to issue an honest verification of the financial condition of banks by scrutinizing the short-term borrowings in financial reports; On the other hand, since auditors do not constrain real transactions, banks may engage more repo management when their ability to manage accruals is constrained by auditors with good quality. The finding supports the latter that auditors with industry expertise are associated with greater use of real repo transactions to manage perceptions. The results have important policy implications to indicate a deficiency in the governance mechanism of the repo market.