Study On The Ability Of CPA Identifying The Accounting Frauds

Since the 18th century when South Sea Company fraud gave birth to independent audit, CPA as economic is regarded as an important line of defining against accounting fraud. Accounting fraudulent degree depends largely on the ability of CPA identifying accounting fraud. In some manner, it is negative correlation between the ability of CPA identifying accounting fraud and the company accounting fraudulent degree. However, domestic and foreign scholars (especially domestic scholars) don't come to an agreement with this study of the problem and some aspects research even remains blank. Therefore studying systematically the ability of CPA identifying accounting fraud has important significance in theory and practice. This Research, surrounding the ability of CPA in China identifying accounting fraud, is analyzed by the theory and proof-tested by the demonstration means. Not only using multi-knowledge including accounting, economics, management, statistics, econometrics and so forth but also multi-means such as theory with practice, using normative analysis and empircal test, combining with qualitative analysis and quantitative analysis etc. In this study, the ability of CPA identifying accounting fraud and other relevant concepts is elaborated and definited systemly, the analysis framework is structured, the present situation and influence factors of auditors'professional competence and auditors'independence is analyzed and proof-tested. It is proof-tested whether CPA can identify accounting fraud and analyzed what is possible main fact that affects the accounting fraudulent degree, on this basis, we put forward policies and suggestions in auditor professional competence and auditor independence in order to offer reference for government legislation, watchdogs supervision, investors decision-making and banks credit etc, improve the ability of CPA identifying accounting fraud, decrease compamy accounting fraudulent activities, and promot securities markets healthy development.This topic empirically analysed CPAs accounting frauds frauds recognition ability on the basis of constructing the analysis framework with contract theory, game theory and other related theorys, the main content and conclusions are as follows:1. The theoretic research aspect:(1)The definition of the ability of CPA identifying accounting fraud deduce that auditors' professional competence and auditors'independence are its two fundamental influencing factors. According to contract theory, we find that internal audit contract through internal various resources input come into auditors'professional competence. Audit client would decrease specilized assets investment because of their custumers' "trap" behavior, thereby making the ability of CPA identifying accounting fraud weaken. Outside audit contract through formal contracts come into that the audit rely on customs in economy, which can threaten the security of auditors'independence. Informal contracts, which affect institutional arrangement, come into restriction to the audits'behavior.(2) Auditors'professional competence is composed of two parts as individual auditor and whole accounting offices'ones. The former is the premise and foundation of the latter and the latter is the guarantee of the former, in the both interactive process, auditors' professional competence embodys finally whole accounting offices'professional competence—industry specialization and presents in social public. Except for auditor personal qualities, other important factors including specialized assets investment, audit market structure, audit regionality and the customs'choice to the CPAs also affect auditors'industry specialization.(3) Autside auditing contracts decide that both minor stakeholders as the weaker and company managers as the stronger are parents of back and belly to CPA. However, the former restrict their activities by auditors'future return (reputation) and the later threaten CPAs by auditors'current benefit (economical dependence). CPA's interested tendencies reflect the balance between the weaker and stronger. And audit surroundings including the degree of marketization, supervision strengths and legal power restrict auditors' opportunistic behavior from the outside. So auditors'independent level is mostly dependent on benefit banlance of between company's authority medium and other powers including minor stakeholder, marker forces, supervision strengths and legal power.2. The demonstration test aspects:(1)With 2002-2008 data as research samples, CPA's professional competence (auditor industry specialization) overall level is not only lower, but also is imbalalanced development and exists bigger regional difference,but overall increasing year by yerar. Judging from the internal factors, CPA's knowledge structure makes greater contributions for CPA's professional competence, and CPA's knowledge level also gradually bring into play its'value, but CPA's practical experience value doesn't pass significance test, namely its functionary is very feeble. Judging from exterior influencing factors, auditor industry specialization positively correlates with specific industry investment, audit market structure, the complexity of customer operation, the industry competition extent and audit regionalization, which means that these influencing factors will be propitious to foster auditor industry specialization. At the same time, this finding indicates the means and approaches on improving to become auditor industry specialization.(2)This thesis proves that auditors'independence which is variable according to the balance of among different interest groups is affected systematically by the pressure exerted by all parties. When analyzing the current situation of auditors'dependence, we find one abnormal phenomenon that auditors'professional competence is deviation from their dependence, which dues to accounting audit office defending their reputation. High quality firms tend to choose the high quality customer, and superior customer also tends to choose the high quality firm. After controlling the accounting office professional competence, auditors'independence level is experientially proved with Chinese data. The research finds that small stockholders, market forces, supervision strength, legal power and listed company managers jointly influence auditor independence from two contrary directions. But the function of market forces, supervision strength and legal power influencing auditor independent doesn't pass significance test.(3)This research experientially verifies and analyzes correlation between the ability of indentifying accounting frauds and accounting frauds by the means of the factor analysis and canonical correlation analysis, and we find that CPA in China has ability to identify the accounting frauds of listed firm. Because auditor industry specialization level is lower at present, auditor independence makes greater contribution to the ability of identifying accounting frauds. Form the confirmatory research result, the accounting office with the higher level industry specialization can better identify the accounting frauds accused by bad financing. but when there is deficient on the corporation manage structure, CPA only identify the accounting frauds accused by the disfigurement of company behavior characters, company dynamic characters and company independence characters. In the same way, auditor independence takes on the higher lever to the accounting frauds accused by bad financing, viz. CPA cannot only indentify but also report this type accounting frauds.3. Poiciys and suggestions:On the base of case study, we proposed policys and suggestions to impriove the ability of CPA identifying accounting frauds.One is to enhance CPAs'professional competence, including improving CPAs'education degree,enriching CPAs'knowledge structure, increasing the practice experience, strengthening the follow-up education, adjusting the firm's competition strategy, increasing the specific industry-specific asset investment, establisming audit market structure, moderately lowering industry competition level, developing large-scale firm, and firming rows to spanned merger etc; Secondly, enhancing auditors'independence, including increasing economic independence, enhancing the minority shareholder's strength, quickening marketization, strengthening supervision, enhancing legal power and increasing penalties and enforcement,ets. Beween CPAs' professional competence and auditors'independence, the urgent will focus on improving auditors'practicing level. Among the accounting frauds caused byfinancial condition factors and internal control factors, the main point is to improve the recognition of fraud acaused by the latter, practice:the fist is to pay attention to the internal control defect, the second is to strengthen internal control business learning and training, the third is to strengthen exchanges and contact with internal audit, the fouth is to strengthen the standardization construction of relevant internal control system.