A Study On The Role Of CPA Auditing In Improving The Allocation Of Resources

In a perfectly competitive market, though the individual maximize their own utility function, eventually the entire market can achieve Pareto optimal. But in the real world, the capital market which play an important role in the allocaton of resource is not perfectly competitive. One of the important premises of perfectly competitive market is smooth and accurate market information. Market participants fully understand various situations. In real life, most of the market participants are r boundedly rational whose opportunistic actions are harmful to the allocation of resources. CPA auditing system is designed to supervise and constraint management. We believe that the CPA Audit can effectively narrow the distance between the real market and the perfectly competitive market, which can improve the efficiency of resource allocation in real life.To study the role of the audit in the allocation of resources, it is best to be able to find the following scenario:a set of audited the company and a group of companies not audited.Through comparing their performance we can determine the role of audit in the allocation of resources. But in real life, we are able to access to public data listed companies which are all audited, the financial data of the companies which are not mandatorily audited is difficult to obtain. This makes us use the second best, that is to find differences in audit quality. Therefore, the audit quality is the starting point of this study. The third chapter exibit an analytical framework, We found that the institution of big4can better constraint and incentive Certified Public Accountant, and improve the quality of audits. Female certified public accountants, as well as experienced certified public accountants can provide higher audit quality. Later study based on the third chapter, three indicators to measure the quality of audit, the big4versus non-big4, whether female certified public accountants, whether experienced certified public accountants. Enterprise is the most important cell in the economic life, the efficiency of its investing and financing behavior will directly affect the efficiency of the allocation of resources in the entire community. Equity and debt are the main sources where enterprise can get fund. Due to asymmetric information, part of corporate management and controlling shareholders’ opportunistic behavior may make the entire capital market slump. Effectively constrain the behavior of the management and controlling shareholders is undoubtedly conducive to corporate finance. In chapter five, we found that the opportunistic behavior of management and controlling shareholders in China is significantly canstrained by big4. The role of big4not only can promote resource flows to enterprises, but also can ease the under-investment in the enterprise which is resulted by lack of fund. Even if there is no opportunistic behavior, due to the lack of necessary information, investors are still difficult to make the right investment decisions, The role of CPA auditing in constraining the opportunistic behavior and improve the quality of accounting information make itself an important signal to guide the allocation of resources. Accounting information as one of the most important sources of information in the capital markets, Improving its quality will be conducive to the investors to make a more correct judgment, which will result in outstanding enterprises get more fund from capital market. Previous studies have shown a conservative accounting information is beneficial to the debt investor, and the relevant accounting information is required by equity investors. Therefore, we studied the role of CPA audit in enhancing the accounting information in these two dimensions. Both Debt investors and equity investors need comparative information, Because comparative information can not only reduce the cost of gathering these information, but also make the information more useful. We find the CPA Auditing can enhance the comparability of accounting information.We study these problem in Chapter6.We found that, With the improvement of the legal environment, the role of the CPA auditing as a signal is prominent in our country and the signal role is recognized by outside investors. We also found that the audit quality can effectively improve the quality of accounting information and mitigate information asymmetry between equity investors and debt investors and listed companies.Certified Public Accountants may engage in opportunistic behavior.The forensic and insurance role of CPA auditing could make investors believe those information that have errors but audited by a certified public accountant. This negative impact may be more serious than absence of auditing system. In order to comprehensive study the role of CPA auditing in the allocation of resources, we must take this situation into account. In the seventh chapter, we found that the collusion of certified public accountant and company can create a bubble. The bursting of the bubble will not only hit the confidence of investors but aslo lead to a mismatch of resources.