The Research On Independent Audit Contract Mechanism

This paper focusing on the background of Chinese audit market establishes the mechanism framework of independent audit contract through applying for the techniques of game and mathematics, etc. Our study based on the modern contract theory and built on the core of independent audit contract mechanism discusses the conclusion mechanism, reputation mechanism, litigation mechanism and regulation mechanism of independent audit contract from academic and practical perspective by analyzing the inner principle of independent audit contract mechanism .In the text, we regard the independent auditing as a kind of market contract, which identities the fairness of accounting statement and detects faults and frauds and depends on accountability. The Transformer Theory of audit quality requires that we should establish the institutional framework of audit quality by the means of contract mechanism. The aim of independent audit contract mechanism designing is to improve audit quality. The key is to control the quality and efficiency of audit contract mechanism function. The premise is the rational equilibrium of auditors and the principle is to match rights and responsibilities. Concretely speaking:(1) The right of auditor engagements is the basic one of shareholders and the auditor independence would be impaired if managers or controlling shareholders act as audit principals from concluding audit contract. Consequently, it will improve auditor engagement system if middle and small shareholders act as audit principals. The low balling behavior endangers the audit quality seriously; therefore, the increase of auditor litigations risk and the foundation of auditor reputation would reduce the adverse influence. (2) Auditor reputation is a kind of trademark capital, which can bring audit fee premium for auditors. The formation of auditor reputation needs special cooperation between spontaneous mechanism and compulsory mechanism. Important measures of establishing and safeguarding auditor reputation include relating audit fee with auditor reputation, building and perfecting civil compensation mechanism, and strengthening audit regulation. (3) Too high and too low litigation risk is bad for integration between public interests and professional interests from the litigation mechanism of audit contract. We advocate to distribute the civil responsibility on the basis of fault We should follow the rule of consequence rationality firstly and procedure rationality secondly, and combine auditor subjective desire and objective environment when judging auditor faults; Compensation patterns should be multifarious. (4) Audit regulation is a kind of adjusted mechanism, which ensures contract implementationquality and efficiency from audit contract regulation mechanism. It consists of qualification regulation , action regulation and punishment regulation. The star rank system is a kind of the institutional innovation to the qualification regulation. During behavior regulation, we focus on competition regulation and discuss the necessity and feasibility of changing excessive competition into efficient competition. We analyze current punishment regulation through positive research, maintain to strengthen the separation between audit firms and the government, and reinforce the punishment intensity.