The Effects Of Audit Firm Rotation On Audit Quality

Recently, researchers have been searching for solutions in fighting high-level fraud and corruption in China audit market and the rotation of audit firm is one of them. However, it has always been engaged in a controversy since its being proposed overseas in the 60s. So, what on earth will such a system affect the audit quality? How to evaluate the system? What lead to the poor audit quality in China? Is it necessary for China to apply the system in China's audit market? This paper will give a concrete theoretical analysis on these issues.Based on a normative approach together with figures and graph, the thesis is divided into five chapters:Chapter One is merely an introduction, which gives a brief view of the background, purpose, current situation of audit rotation study, and the content of this thesis.Chapter Two devotes to a theoretical analysis on the internal and outside factors of audit quality, and builds a theoretical frame for further study.Chapter three synthesizes the available achievement in this field, and then systematically examines the relationship between audit rotation and audit quality. It reveals a variety of impact of audit rotation on audit quality and its dependence on the external or economic environment.Chapter Four goes on with a further examination of the impact of audit rotation on audit quality in the perspective of audit processing environment. This chapter looks into the causes for poor audit quality in China and points out audit rotation won't provide substantive assurances that the audit firm and its partners maintain the objectivity and independence required for an effective audit. Meanwhile, it will elicit negative effects because of the unripeness of audit market in our country. So audit rotation is not a suitable reform in China at present.Chapter 5 offers some proposals to improve the audit quality and to avoid the problems caused by long tenure of the audit firm.There are two main contributions of this thesis. Firstly, it reveals a variety of impacts of audit rotation on audit quality and its dependence on the external or economic environment by synthesizing all the available outcomes in the world, which opens a new door for the future study. Furthermore, considering the case in China, the thesis provides theoretical evidence for the decision of whether to apply this system as well as some policy proposals for reference.