An Analysis On The Supply And Demand Of Independent Audit

The demand for external audit service originates from the intention to smooth transaction among contracted parties in commercial society(including shareholders, creditor, management and potential investors).In the independent audit market, supply and demand play a very important role .As two sides of the market, they have close relationship with the independent audit quality and the ongoing of the whole independent audit market. Recent years, there are many falsification of account occurred. They lead to the bankruptcy of the public accounting firms that audit the firm'report. During this situation, it is very important to research the audit supply and demand.From the view of economics, accountability relation is the basis of the audit relation, and also the basis of the audit market. To research the audit, it must research the every side of the audit. The auditor's independence and performance determine directly the audit quality while clients influence the audit quality indirectly by piloting the auditor's behavior through market choice. In the highly developed capital market of today, the independent external audit institution has become one required institutions of stock market and plays important roles in the resource allocation. Nevertheless, there is serious asymmetry information in audit service, as the auditor's failure to offer fair assurance of the financial reports would aggravate the information risk of the transaction party. In this case, the audit is inefficient. Also, there is regulation focused on audit efficiency in the audit market.In china, the imperfect corporate governance leads to inadequate voluntary demand for independent audit, the lack of which results in the lack of the CPA's motive to improve the audit quality. Meanwhile the regulations imposed on the CPAs may encourage CPAs' taking a risk of reporting an untrue or illegal opinion.So the author makes some suggestions by Supply and Demand Theory to discuss the two sides of audit. The objective is to find out the question of the audit market. Then by Game Theory to analysis the supply and demand in order to find out the ways to improve the independent audit quality. At last, put the analysis model into practice to settle the questions in our audit market. Through analyzing the characters of supply and demand of audit in our independent audit market, the auther thinks that only when we focus on this gaming paradox between the supplier and demander of independent audit can we solve those problems.