Government Accounting Supervision And Audit Quality

As the “gatekeepers” of the capital market,the CPAs are the important defense line to ensure the quality of accounting information.A healthy capital market is inseparable from high-quality CPA audit.The new situation and new requirements faced by the reform and development of the capital market have new expectations for the high-quality development and high-quality audit of the CPA industry.On September 25,2020,the Ministry of Finance,the State-Owned Assets Supervision and Administration Commission and the China Banking and Insurance Regulatory Commission jointly issued the implementation opinions on strengthening the practice management of accounting firms and effectively improving the audit quality,which put forward the principle of establishing the quality priority orientation and focusing on the audit of public interest entities such as listed companies and state-owned firms.However,there is still a certain gap between the practice quality of accounting firms in China and the expectations of the public.For example,76.67% of the 30 financial fraud listed companies that were punished by the China Securities Regulatory Commission in 2020 were still subject to standard unqualified opinions issued by auditors.For the “market failure”of audit quality,a common view is that supervision can promote the audit quality,and the supervision mechanism plays a key role in ensuring high-quality audit.At present,China’s audit industry is supervised mainly by administrative supervision such as the Ministry of Finance,the Securities Regulatory Commission and the National Audit Office,supplemented by industry self-discipline.An increasingly stringent regulatory environment is gradually created.Among them,the Ministry of Finance is in the core position of the government supervision department.Based on the trinity-style accounting supervision system including unit internal supervision,social audit supervision and government supervision,the supervision subjects complement and interact with each other.As the leading department of government supervision,the Ministry of Finance can not only directly take supervision measures for the audit industry,but also has indirect supervision effectiveness to CPAs through accounting supervision of firms.The literature on the effect of government accounting supervision has been relatively rich,but among them,a large number of studies examine the direct impact of government accounting supervision on audit quality from the perspectives of China Securities Regulatory Commission,practice quality inspection of accounting firms,inquiry letter,National Audit Administration inspection and China Institute of Certified Public Accountants.Only a few scholars have discussed the spillover effect of administrative punishment or inquiry letter in the audit market.However,in fact,due to the limited supervision resources,the purpose of supervision institutions is usually to deter and warn other non-compliance subjects and reduce the occurrence of future violations in advance,although supervision acts such as administrative punishment are aimed at the violation subjects.At the same time,the vast majority of the literature on accounting supervision by the Ministry of Finance is normative research or focuses more on practical discussion.Few scholars study the effect of accounting supervision by the Ministry of Finance.As one of the main ways for the Ministry of Finance to perform the responsibility of government accounting supervision,the Inspection Program of Accounting Information Quality(IPAIQ)follows the institutional arrangement of “double random and one disclosure”,and the natural exogeneity greatly eases the endogenous problem in previous studies.This unique institutional background provides a good opportunity for the development of this study.According to the results of the IPAIQ,there are more or less problems in the information disclosure or business activities of the listed companies,and are usually required to be rectified or punished.The job responsibilities of CPAs are consistent with the contents of the IPAIQ.In order to reduce the probability of audit failure,will auditors be more cautious in clients after they have been inspected? Has the audit quality improved? In addition,can there be a “deterrent effect” on the audit quality of unchecked listed companies? Based on this,this thesis mainly studies the following important issues:(1)I investigate the impact mechanism of the IPAIQ on the audit quality of the inspected firms;(2)Further,from the perspective of the same auditor and the same team,this thesis examines the impact of the IPAIQ on the audit quality of unchecked firms;(3)Finally,after examining the impact of the IPAIQ on the audit quality of the inspected firms,this thesis discusses the capital market effect of inspection from the perspective of the stock price crash risk.I manually collect the data of problem firms disclosed by the IPAIQ of Ministry of Finance from 1999 to 2017,and investigates the regulatory spillover effect and economic consequences of the IPAIQ from the perspective of audit quality based on the quasi-natural experiment of “double random and one disclosure” system.The main conclusions are as follows:(1)The IPAIQ significantly reduces the discretionary accruals of the inspected listed firms,which is mainly reflected in the decrease of positive discretionary accruals,also,the probability of a firm being issued a non-standard audit opinion increase,indicating that the audit quality of the inspected listed firms has been improved.By subdividing the characteristics of inspected firms,it is found that the audit quality of listed firms that have disclosed specific violation data and tax problems improves more significantly.Further testing the impact of heterogeneity,the study finds that the positive impact of the IPAIQ on the audit quality of the inspected firms is more significant in the samples with poor internal control quality,state-owned enterprises,low importance,in a poor legal environment and high media attention.In addition,this thesis also finds that the audit fees required by the accounting firm increase after the enterprise is inspected.(2)The IPAIQ has also played a certain role in improving the audit quality of noninspected listed firms,but this effect is weaker than the inspected ones.Specifically,the IPAIQ significantly reduces the discretionary accruals of other customers of the auditors of the inspected firms,and improves the probability that they will be issued a non-standard audit opinion;However,the inspection can only reduce the positive discretionary accruals of the firms whose auditors have the same signing experience with the auditors of the inspected firms.The heterogeneity test shows that,for other clients of the auditors of the inspected listed companies,the positive effect of the IPAIQ on audit quality is more obvious in the samples with poor internal control quality,no political connection and in a poor legal environment;For the firms whose auditors have the same signing experience with the auditors of the inspected firms,the positive effect of the IPAIQ on audit quality is more obvious in the samples with poor internal control quality and no political connection.In addition,this thesis also finds that there is no change for the audit fees of unchecked firms.This may be because these firms have not been inspected directly,and the risk of them has not been substantially increased,so the accounting firm’s premium ability has not been improved.(3)The IPAIQ can reduce the stock price crash risk by improving the audit quality of the inspected firms.In addition,further analysis reveals that the inhibitory effect of audit quality on the stock price crash risk is more obvious in firms with poor information environment,low equity concentration and bad internal control.It provides more empirical evidence for the positive effect of the IPAIQ on the capital market,also proves the information effect and corporate governance effect of audit quality to a certain extent.The possible innovations of this thesis are as follows:First,different from the previous studies on the effectiveness of government accounting supervision,this thesis provides empirical evidence of accounting supervision in the Ministry of Finance.The existing research focuses on the discussion of securities supervision,audit supervision and so on,while accounting supervision by the financial departments,especially the IPAIQ,how to improve its supervision effect,which is an important problem worthy of study.However,there is still a lack of research in this area,especially the lack of empirical evidence of accounting supervision by the financial departments.The practical work of accounting supervision by the financial departments urgently needs the guidance of relevant theoretical results,especially empirical evidence.This thesis discusses the impact of the IPAIQ of the Ministry of Finance on the audit quality of listed firms and its economic consequences,which greatly provides empirical evidence for the effectiveness of accounting supervision by the financial departments,and provides empirical support for further strengthening government accounting supervision and promoting the high-quality development of capital market.Second,this thesis pays attention to the IPAIQ of the Ministry of Finance.The research sample is one of the highlights of this thesis,which can effectively alleviate the endogenous problem in the previous research.Existing studies often have sample selection bias when investigating the effectiveness of accounting supervision,that is,endogenous problems are serious,and the IPAIQ of the Ministry of Finance provides a good research scenario for studying government accounting supervision.This inspection is exogenous and can alleviate the endogenous problem to a great extent.Based on the IPAIQ,this thesis takes the inspected companies as the treatment group and the companies not inspected as the control group,and analyzes the supervision effect through a difference-indifference method.Third,this thesis supplements the empirical evidence of the influencing factors of audit quality from a new perspective.The existing literature mainly focuses on the impact on audit quality from the perspective of securities supervision and audit supervision,and pays insufficient attention to the relationship between accounting supervision by the financial departments and audit quality.There is only one paper that uses accounting firms as a research sample to discuss the impact of the IPAIQ on audit quality.Different from this paper,I focus on the regulatory spillover effect of the IPAIQ.This thesis not only examines the impact of the IPAIQ on the audit quality of inspected firms and its economic consequences,but also pays attention to whether the audit quality of unchecked firms has also changed.So,this thesis discusses the effective ways to improve audit quality from a new research perspective.