A Study On The Effect Of Non-audit Service On The Audit Independence Of Chinese Listed Companies

Audit independence is the soul of Certified Public Accountants (CPA) and it is also the prerequisite for the existence and development of the CPA industry. With the progress of CPA industry service for market, the revenue from non-audit service is more and more important in the operation of the accounting firm, and the impact of non-audit service on audit independence has also become the core content of audit theoretical and empirical study. The impact of that the listed company purchases audit and non-audit service simultaneously on the audit independence is mainly studied in this paper.Firstly, according to the impact of non-audit service on audit independence based on time sequence, the literature on two different view is reviewed separately. Then, the development and correlative legal background of the CPA industry and the non-audit service offered by the CPA industry during China's economic transition period are analyzed, which lays the foundation for the follow-up theoretical and empirical studies.Secondly, Based on the introduction & review of the theoretic controvers among enterprise contract theory, principal-agent theory, knowledge spillover effects and the economic rent-seeking theory, the relationship among above mentioned theories and the effect of non-audit services on audit independence are discussed. The existence of non-audit services has changed the existing contract relationship between the enterprises, which transformed the original one-way commission into a two-way commission and formally broken the balance of the original audit structure. The knowledge spillover effects between the audit and non-audit service provides the possibility and cause for the parties who buy or sale non-audit services to pursue economic rent. Non-audit services is the important factor for affectively audit independence, If there is a effective constraints mechanism in the capital marcket , the non-audit services not only will not damage the independence of the audit, but also will help to improve the independence of the audit.And then, the effect of non-audit services on the formal audit independence is examined by empirical study method. Through matching the research and control samples one by one, and using of means test, Wilcoxon test and multivariate regression, the research find: in China, there is no significant difference in the agency costs between the listed companies for having purchased non-audit services and not; in addition to the shareholdings of management, other variables of agent costs do not have significant correlation with the non-audit fees, the users of financial statement don't think that the non-audit services impare the independence of auditor; the size of audit costs significantly positively correlate with the pricing of non-audit services,which means that the audit fees don't be transfered through the non-audit fees. There is no evidence that non-audit services will damage the formal independence of the audit.After that the impact of non-audit services on the substantial audit independence is examined by empirical study method. according to the collected data of listed companies, After matching the research and control samples one by one, by methods of the means test, Wilcoxon test, multivariate regression and Logistic regression , the research based on the environment that inexistence of industry factors and macroeconomic policies factors finds that: in china, purchasing non-audit services whether or not have no significant relevant on the discretionary accruals and type of audit opinions; absolute amount and proportion of non-audit fees do not have significant correlation with the discretionary accruals,which reveals that the CPA dosen't let the client who buy both audit services and non-audit services have more large room of earning manangement; the absolute amount and proportion of non-audit fees as well as unexpected non-audit fees are not significantly related with audit opinions, non-audit fees doesn't negatively affect the process of the audit opinion. There is no significant evidence that non-audit services will damage the substantial independence of the audit.At last, on the basis of theoretical analysis and empirical study, some policy advices is brought forword about non-audit services: our country should develop non-audit services with great exertion, but must regulate it from the level of listed companies, supervisor and CPA'industry.The innovations of this paper are: The effect of non-audit services on audit independence is systemic analysised. Based on useing the variables that alnatives the substantial independence and formal independence, the result that non-audit services will not damage the audit independence that not only formal but also formal is tested by the empirical study with the data from listed companies in china.