China Enterprise’s Demand For Auditing Of CPA

With the establishment and perfection of the socialist market economy, the Certified Public Accountant industry in China has achieved development by leaps and bounds. As the product of market economy, CPA industry’s development depends on two factors:the supply’s promotion and the demand’s traction. With the support from China Government, the CPA industry has improved audit market supply greatly by the implementation of the strategy of becoming bigger and stronger. But on the demand side, the problem of inefficient demand for high quality audit has not been resolved for many years, which go against the further development of CPA industry. We focus our eyes on the audit demand in this thesis. We have researched the current situation of audit demand in China and its institutional cause in order to provide intellectual support for further institutional reform.The thesis adopts the research method combining theoretical summary and empirical test. On the guidance of the stakeholder theory and institutional economics,3 innovations have been achieved in this thesis as follows:1. A new theoretical model about enterprise’s audit demand is built. Borrowing ideas from Stakeholder Theory, we take the enterprise’s audit demands as a Nexus of stakeholders’audit demands. And the expression of enterprise’s audit demand depends on two factors:(1) stakeholders’demand preference to audit; (2) stakeholders’express abilities of demand preference. Among them, the stakeholders’audit demand preference depends on the consistency of their own interests and the audit; the stakeholders’express ability of their audit demands mostly depend on the institutional environment, such as audit entrust system, equity voting system, the government’s influence on the securities market, and regional marketization etc.2. A new equity voting system is put forward to perfect the current audit entrust system by withdrawing the actual controller and the controlling shareholder’s voting right to select auditor. Under the current audit entrust system, none of shareholders’equity is evaded when shareholders vote on audit entrusted matters, as a result that audit entrust right belongs to the controlling shareholder while the controlling shareholder is substantially responsible to the accounting statements. Audit paradox appears when the controlling shareholder not only runs the business but also holds the right to select the auditor. In order to clear up audit paradox and allow full play to audit supervision function, the controlling shareholder’s right to select auditor should be call off. This audit entrust system reform proposal’s realistic foundations include the the successful practice of classified voting system during the share reform in our country and the corporate disclosure system about the actual controller and controlling shareholder. In agreement with the audit entrust system reform, the independent director system should also be reformed because independent director’s one of important duty is to supervise the actual controller and the controlling shareholder.3. The CSRC’s "audit demand express dilemma" is found and analyzed. Because of the current Authorized System of IPO in China, China Securities Regulatory Commission (CSRC) is the biggest consumer on audit. Facing the hundreds of applications to list, the CSRC do need the high quality audit to classify them. The freedom of expressing their consumer preference is consumer’s basic right, but CSRC dosesn’t have this right, because it simultaneously act as audit market regulator. Being the audit market regulator, CSRC should abide by the principle of fairness, treat custody objects equally. If CSRC shows certain "consumer preference", this will form using power to do business and seriously damage the fair competition in audit market. So, the CSRC is in a very awkward position about their their audit demand preference. This phenomenon about CSRC is named as "audit demand express dilemma" in this thesis.The thesis is divided into 7 chapters as follows:Chapter 1 is "introduction". This chapter introduces the topic-selection motivation, the object of study, the research methods, as well as research approaches and the structure arrangement.Chapter 2 is "the literature review". This chapter determines the theory coordinates for the study, including the summary on the former audit demand theories, audit demand status and the institutional environment’s influence on audit demand.Chapter 3 is "the enterprise’s audit demand decision:theory conclusion". This chapter lays a theoretical basis for the post amble, including five points, such as the definition, the effect factors of audit demand, the theoretical model on enterprise’s audit demand, enterprise’s stakeholders and its demand preference to audit, and the current system background in China. This chapter’s core task is to construct a more common theoretical model than before. Our conclusion is that the enterprise’s audit demands is the Nexus of stakeholders’audit demands, which depends on two factors:the stakeholders’demand preference to audit and the stakeholders’express abilities of demand preference.Chapter 4 is "the status quo of audit demand:empirical evidence". This chapter studies the situation of enterprise’s audit demand in China. At the beginning of this chapter, the history of China enterprise’s audit demand is studied. And then, some new empirical facts are taken to support the induction of history. This chapter is divided into four sections, the main content includes:(1) the overall features of the status quo of audit demand in China is the lack of high audit demand, which has three kinds of expressions, such as: enterprise’s low quality audit demand preference, external shareholders’rational apathy to audit quality and audit demand’s dependence on administrative. (2) the enterprise’s low quality audit demand is supported by the quantitative relation between the shift of auditor and audit quality in recent three years. (3) the external shareholders’rational apathy to audit quality is showed by the empirical test on the relationship between the IPO pricing and the auditor’s reputation from January 2005 to April 2010. (4) the audit demand’s dependence on administrative appears in the research on the influence on the audit of CPA industry’s strategy to bigger and stronger, while China government shows support for the strategy.Chapter 5 is "the cause of audit demand status:microscopic institutional analysis" Auditing of CPA is a component of corporate governance, while property rights and corporate equity structure is the basis of corporate governance. Because of the government ’s great influence on the market, state-owned and private enterprises also show dependence on the administrative in auditor choice, though the goal of dependence is different. State-owned enterprise show dependence in audit demand because the government is its "big boss", while the private enterprise show independence because the government’s support can lead to superiority in market competition. "Only one big" is still the main trait of current listed company equity structure. Whoever hold more right to select auditor, whose demand reference can be more showed by the enterprise’s audit entrust system.Under the current audit entrust system, none of shareholders’equity is evaded when shareholders vote on audit entrusted matter, as a result the actual controller and the controlling shareholder manipulates the the right to select auditor while he is in charge of the business actrully. This is the main microscopic institutional cause to the lack of enterprise’s demand on high quality audit. So this chapter proposes a bold system reform proposal that the actual controller and the controlling shareholder’s voting right should be canceled in auditor selection. The conception "external shareholder’s right to supervise" is also put forward to support the reform proposal theoretically, while the right to select auditor is the main content of external shareholder’s right to supervise. Chapter 6 is "the cause of audit demand status:macro institutional analysis". This chapter discusses the relationship between macro system and audit demand, including five sections:an overview, the relationship between area market reform process and audit demand, capital market’s administrative supervision and audit demand, false statements civil actions in capital market and audit demand, and macro system reform proposal. Experience evidence makes clear that the audit demand has significantly positive correlation with the degree of marketization. The CSRC is in a very awkward position about their their audit demand preference, which is named as "audit demand express dilemma". China government’s supervision on the securities market shows a overall feature as " tight at first but loose afterwards", which leads the outside investors to keep a rational apathy to the audit quality. Macro system reform proposal is offered in this chapter is that the government should loose the direct control on the economy, because CPA audit is the product of market economy in nature.Chapter 7 is "epilogue". The main content includes:main conclusions, policy suggestions, and innovation points. At the end of this chapter, the limitations of this thesis and the possible subsequent research on audit demand are discussed.