Audit Quality Of Big Four Auditors In China

In any capital market auditors play a vital role in the issuance of high quality financial reports. The question of whether auditors adequately play this role in enhancing credible reporting received much attention in China with the very public collapse of Enron corporation and KPMG involving in the incident of Jinzhougang. Five parts are as follows. In the first part, we review the literature over audit quality of Big Four auditors. We find there is difference in audit quality between Big Four and non-Big Four auditors in the developed countries such as USA. However, such difference exists on the base of a series of serious hypothesis, including free competition in audit market, effective audit regulation, enough audit risk, and free information among audit clients. While the CPA profession in China is developed for a short time, the normalization auditing market does not exist. So, there is not condition though which difference existed in Chinese audit market. That is to say, audit quality of the Big Four auditors is not so high in China in the current condition. In the second part, firstly, we tested the demands to audit quality in Chinese audit market from demanding and supplying sides of audit service. We find high audit quality is not needed in the current capital market in China. Then, we analyzed audit quality of Big Four auditors in China by contractual theory as analysis tool together with Chinese current institutional background. We get a conclusion that audit market in China is a market in which bad money drives out of good money, and there is low incentive for Big Four auditors to provide high-quality audit. Because audit quality is invisible, it is difficult to measure audit quality. And researchers measure audit quality with different...