Research On Auditor’s Individual Characteristics And Audit Quality

As an important intermediary service of modern market economy, audit derives from the need of entrusted economic management. Both traditional audit and modern audit, the objective base is agency relationship of economic responsibility. Along with the continuous development of social economy and refinement of social division of labor, audit is divided into national government audit, internal audit and CPA audit according to different nature of economic responsibility relationship. In terms of CPA audit, as the bridge between owners and agents, auditor should be adhering to be the independent third party, check the financial report and evaluate managers’responsibility fulfillment. Namely, the signing auditor issues an appropriate audit opinion to improve the quality of financial information and protect the legitimate rights and interests of the owners. In a word, auditors play an indispensable role in maintaining the normal order of market economy.The audit practice of different countries and regions shows that the realization of the function of CPA audit relies on the fairness of the audit results. What is more, all of this is closely related to the individual characteristics of auditing practice executives. CPA audit belongs to intelligence intensive service industry, how do auditor’s individual characteristics affect professional competence and independence, execution effect of audit strategy and procedure, audit result and its quality? What is its action mechanism? In recent years, in order to explore these issues, there has been a growing trend of auditing researchs of foreign scholars. Research perspective has been gradually shifted from the level of the accounting firm as a whole to the level of office, then is extending to the level of individual auditor. Unfortunately, correlational studies of domestic scholars are slightly lag and inadequate. In fact, in terms of auditing services, the heterogeneity of individual CPA is more important and richness in connotation than that of accounting firm or office. In addition, there is a common feature of the few research based on the perspective of individual auditor, which is that most people only pay attention to the signing auditor’s basic population characteristics such as gender, education and political beliefs, but ignores the practice characteristics such as practice experience, concentration and customer economic dependence. However, these practice characteristics affect the selection and implementation of audit strategy and audit procedure directly, also determin the audit quality ultimately.In view of theory and practice need of research on relationship between signing auditor’s individual characteristics and audit quality, according to the specific environment and institutional background of China stock market, based on the perspective of signing auditors, this paper explored relationship between auditor’s the basic population characteristics,practice characteristics and audit quality. First of all, on the basis of literature review, we theoretically analyzed action mechanism of auditor’s individual characteristics, its influence factors and constraints. Then we builded the theoretical model concerning the relationship between individual characteristics and audit quality. Secondly, we put this theory model into specific background of audit market environment and legal system in China. In this way, we build the test mode of relationship between individual characteristics and audit quality under specific economic environment and system background of our country. Finally, based on the sample of listed companies and their signing auditors during 2007-2013 in China A-share market, we did empirical analysis and got research conclusions as follows.Firstly, selecting education experience, gender and age as auditor’s individual demographic characteristics, we constructed econometric model to examine the relationship between individual demographic characteristics and audit quality. It can be found that:(1) based on the whole sample, audit quality is higher when auditor’s degree is higher or his major is more closely related to finance. However, auditor’s gender or age does not influence the audit quality significantly. In other words, there is no significant difference on auditor’s risk attitudes or professional caution in different genders, auditor’s age also cannot fully reflect the individual practice experience or professional competence. Whether in test model of unilateral characteristic or test model of integration characteristics, the results are established. (2) Further more, after distinguishing directions of earnings manipulation, there is a significant relationship between auditor’s education experience and positive earnings manipulation, but no clear relationship about negative earnings manipulation. (3) In the robustness test, we choose different measures of audit quality and auditor’s individual demographic characteristics, also consider the potential affection of audit firm changing, the results above are sound.Secondly, selecting auditor’s practice experience as the embodiment of professional competence, we examined the relationship between individual practice experience and audit quality. It can be found that:(1) under the whole sample, there is a significant positive relationship between auditor’s practice experience and audit quality. Because, auditor’s practice experience could strengthen one’s ability of risk identification and controlling, which further determines areas of misstatement or omission, then design and implement appropriate audit procedures. (2) Further more, considering audit independence, we put auditor’s tenure into the test model and find that there is an interference interaction effect between practice experience and auditor’s s tenure. It is because that auditor’s tenure both affects audit experience of specific customers and audit independence. (3) Then, distinguishing directions of earnings manipulation, there is a significant relationship between auditor’s practice experience and positive earnings manipulation, but not negative earnings manipulation, interference interaction effect between practice experience and auditor’s tenure is also similar. (4) In the robustness test, we choose different measures of audit quality and auditor’s practice experience and consider the potential affect of audit firm changing, the results above are sound.Thirdly, selecting auditor’s practice concentration as the embodiment of professional competence, we examined its effect on audit quality. It can be found that: (1) under the whole sample, there is a significant positive relationship between auditor’s practice concentration and audit quality. Because auditor’s practice concentration could improve one’s auditing knowledge about client’s industry, then strengthen the audit experience to guard against audit risk. (2) Further more, considering audit independence, we put auditor’s tenure into the test model and find that there is an interference interaction effect between auditor’s practice concentration and tenure. This suggests that auditor’s tenure is an integrated reflection of audit experience and audit independence, it is not just a linear correlation relationship between auditor’s tenure and audit quality. (3) Then, distinguishing directions of earnings manipulation, there is a significant relationship between auditor’s practice concentration and positive earnings manipulation, but not negative earnings manipulation and interference interaction effect between auditor’s practice concentration and tenure is also similar. (4) In the robustness test, following Kothari (2005) to measure audit quality, adopting total number of auditor’s clients in a specific industry to measure auditor’s practice concentration, we consider the potential affect of audit firm changing, the results above are sound.Fourthly, selecting auditor’s client importance as the embodiment of professional independence, we examined its effect on audit quality. It can be found that:(1) under the whole sample, there is a significant negative relationship between auditor’s client importance and audit quality. For individual auditor, the higher the importance of one client, the greater the economic dependence on this client and the more likely to be abducted by this client, then it would hurt auditor’s substantial independence and audit quality. (2) Further more, we put the reputation maintenance mechanism of Big Firm into the test model and find that it could adjust the negative relationship between auditor’s client importance and audit quality. (3) Then, distinguishing directions of earnings manipulation, there is a significant relationship between auditor’s client importance and positive earnings manipulation, the moderating effect of Big Firm is also similar. (4) In the robustness test, following Kothari (2005) to measure audit quality, adopting total assets of auditor’s clients to measure auditor’s client importance, extending Big Firm from Big 4 to Big 10 and we also consider the potential affect of audit firm changing, the results above remain sound.In conclusion, according to the specific environment and institutional background of Chinese auditing market, we theoretically analyze action mechanism of auditor’s individual characteristics. We adopt the sample of listed companies and build mathematical models, then empirically analyse relationship between auditor’s individual characteristics and audit quality. This article helps the information users to interpret auditor’s behaviors and its effects. To be specific, the academic significance of this study includes that:(1) the research perspective has been shifted from the level of the accounting firm as a whole to the level of individual auditor, this not only embodies the people-oriented characteristics of audit industry, but also gives full consideration to the auditor’s individual heterogeneity who have full capacity for civil conduct. (2) Further more, selecting education experience, gender and age as auditor’s individual demographic characteristics and examining its effects on audit quality, this not only enriches the literature in the perspective of individual demographic characteristics, but also provides theoretical logic and empirical evidence from China for research in this field. Then, selecting practice experience, practice concentration and client importance as auditor’s individual practice characteristics and examining its’ effects on audit quality, this paper provides a more concrete perspective and logical thinking. (3) This paper also has some important reference value for policy, it will helps the supervision departments to interpret auditor’s behaviors and its effects, understand the process of audit product outputting and finally rendering, helps the regulators to formulate scientific and reasonable policies, then to ensure that the auditing service runs efficiently on the right track and promote its healthy development continuously.