A Study On The Auditor’s Operational Efficiency In China

Economic organization is an entity founded by individual and collectivity to help them achieve their economic goals by the internal and external interaction of the entities. Therefore, the organization should be judged by its basic goal. For Auditors organization, they must provide audit reports that possess certain independence and quality assurance, or audit would be meaningless; and the efficiency of the organization can strongly support the maintenance and improvement of practice quality. In order to maintain the image and reputation of the CPA industry better serve the economy and the society and lead to a sustainable development of industry, the auditor is required to provide an efficient supply. And only economic organizations with efficiency operation can strongly protect and support the overall development of the industry and its role in the market economy.On the basis of the property rights theory, incomplete contract theory, organizational economics, industrial economics, the microeconomics and X-efficiency theory, this dissertation constructs the analytical framework of the main factors which influence the operational efficiency of the auditor. After that, an empirical study is conducted based on the above. This dissertation measures and evaluates the actual situation of the operational efficiency and its changes during the period of "eleven-five", and then empirically tests the main factors which has effect on the operational efficiency and its changes. The dissertation is divided into eight chapters as follows:The first chapter is the introduction, mainly introduces the research motivation, object, methods, research approach and structure arrangement. The second chapter is the literature review, commenting the factors and the characteristics that have influence on the operational efficiency of the CPA industry at home and abroad. The third chapter is the system background and the theoretical basis. Under "the bigger and stronger strategy system" background of our current CPA industry and based on the new institutional economics of property rights theory, incomplete contract theory, industrial economics, microeconomics and X efficiency theory, this chapter analyzed the factors and mechanism of auditor operational efficiency. And then this dissertation constructed the framework of system analysis of the auditor’s operational efficiency. The fourth chapter is the measurement and evaluation of auditor’s operational efficiency, using data envelopment analysis (DEA) method and the Malmquist index method, measured and evaluated the operational efficiency and its changes during the"eleven-five"period. The fifth chapter focuses on the auditor’s characteristic, audit quality and the operational efficiency of the auditor. From the perspective of supply, with cross section and panel data regression method, this chapter empirically tested the relationship among auditor’s characteristic, audit quality and its operational efficiency.And this chapter also pointed out that in order to continue to develop the entire industry healthy, it is required to take a series of measures and means including raising the price of auditing to guide the CPA industry to get out of the vicious circle. The sixth chapter illustrates the characteristic of customer, the demand from customer and auditor’s operational efficiency. From the perspective of customer characteristics and needs, using cross section and panel data regression method, this chapter empirically tested the relationship among characteristic of customer, demand from customer and the auditor’s operational efficiency. The seventh chapter discusses the changes of audit mode, the merge of CPA firms and the auditor operational efficiency changes, with total factor productivity representing the auditor’s operational efficiency changes as the explained variable, using panel data, empirically tested the influences of the audit mode change, organization change and the merge of CPA firm on the operational efficiency changes. The eighth chapter is a summary of the research results, put forward countermeasures and suggestions, and points out that the main contribution and limitations, and the direction of future research.Through the above research, the dissertation draws the following conclusions:First, the CPA industry is an industry which is featured by the lots of human capital investment. Operational efficiency refers to input and output ratio during the process of the putting in the main inputs such as human capital, professional knowledge and reputation etc. to produce assurance services or other information service with certain quality, and gaining returns. However, due to the feature of human capital, a wide range of limited rationality, rational choice and opportunistic behavior will lead to a high transaction cost resulted in the CPA industry, which reduces the industry operational efficiency. At the same time, from the output perspective, audit product has a property of quasi public goods. Public goods charges difficultly, so it’s hard to make up for the cost of production, which lead to a low efficiency. Moreover, from the view of relationship between supply and demand in the audit market, audit market is still a buyer’s market. The market structure of audit industry in our country still fails to form a monopoly, and the fierce competition exists between firms, which also results in a low operational efficiency in the whole industry.In addition, in terms of output with certain quality, audit product belongs to experience goods, so information is relatively asymmetric. Adverse selection will make auditor of high quality expelled. Although the signal mechanism will change the situation of asymmetric information, the signal mechanism itself has cost, which is also influenced by range of signals. Especially when legal demand dominates, auditor of higher quality may be difficult to achieve virtuous circle of high quality and high efficiency. More likely, the auditor will issue the report with low quality under the influence of egoism," audit paradox" or the prevalence of opinion shopping after contract was signed, thus lead to the deviation of quality and efficiency.Second, with data envelopment analysis and Malmquist index method, the empirical results show that when measured by the constant technical efficiency(CRS efficiency), during "eleven five" period, our country’s firm operational efficiency level remains on a low level, but within five years it is continues to rise, which has risen from0.42to0.62. And the efficiency of the "big four" is much higher than the domestic firm’s average level, but the domestic firm is gradually narrowing the gap. Especially in2008-2009years, domestic firms’operational efficiency continues to rise. In addition, in the view of the firms’ operational efficiency changes, during2006-2010, the CPA industry has achieved a24%growth, in which the relative efficiency changes contributed15%, and technical progress contributed10%. And the domestic firm’s growth is the main force of operational efficiency growth.Third, the empirical results of auditor characteristics, audit quality and audit operational efficiency showed that organization characteristics, business characteristics, technical characteristics and human resource characteristics of the firm are the main factors affecting the operational efficiency of the auditor. Therefore, currently CPA industry implements bigger and stronger strategic measures, such as developing diversified business, expanding the firm’s scale, changing the organization form, lifting and unifying the pricing level, which is helpful to raise the level of the firm’s operational efficiency. Only combined with relative property arrangement the industry leading talented CPA can actually play its role, so that the efficiency advantage of human resource can play better. Raising the level of efficiency by the industry expertise, it needs to consider the corresponding relationship between output and input. A variety of measures should be taken to improve the level of output; therefore the industry expertise can be beneficial to the improvement of the auditor’s operational efficiency. Audit quality has significant negative correlation with the auditor’s operational efficiency. This deviation will seriously affect the development of the industry; it needs to adopt a series of measures to lead the whole industry to the situation of benign cycle development.Forth, the empirical results of characteristics of customers, customer demand and the auditor’s operational efficiency show that customer characteristics and demand significantly influence the auditor’s operational efficiency. It is required to raise the recognition of the customer risk in order to improve the auditor’s operational efficiency. Moreover, driving the demand for high audit quality can change the deviation of quality and efficiency.Fifth, the empirical results of the change of audit mode, the CPA firm merge and the auditor operational efficiency changes show that except for the organization scale and ratio of CPA to employee, which have significant positive correlation with the changes of the auditor’s operational efficiency, the change of audit mode and organization form are the most important factors that lead to the changes of auditor’s operational efficiency. However, the firm merge doesn’t have statistical significant correlation with the auditor’s operation efficiency changes. Therefore continuing to strengthen the technique, skill, experience of the auditor, and the coordination of the integration of the merged firm will lead the operational efficiency of CPA industry to a faster enhancement.This dissertation first tries to construct the systems analysis framework of factors that influence the auditor operational efficiency. And basing on the new institutional economics theory and other theories, this dissertation theoretically summarized the reasons of low efficiency in audit industry and the reason of the deviation of audit quality and efficiency. In the empirical parts, DEA and Malmquist index method are first used to measure and evaluate the CPA industry operational efficiency and its changes during " eleven-five" period. At the same time, using cross section and panel data regression analysis methods, the dissertation identified the factors of auditor and customer characteristics that can influence auditor’s operational efficiency and its changes.This dissertation still has some certain limitations in the following aspects:The selection of proxy variables, such as the audit quality, the audit mode, audit tenure, customer characteristics is still required of advanced rigor research. Moreover, the research scope is limited to the securities qualified firms, so the conclusion drawn from the research may not applicable to non securities qualified firms.