A Study On The Supply And Demand In Auditing Market

Since December 10th, 2001, CSRC issued the disclosure regulation on audit fee forthe listed companies, more and more domestic scholars published valuable researchesin this field. However, previous research on audit market primarily focused on thesupply of audit services using single-equation models ignored the endogeneitybetween auditor choice and audit fees, which might affect the research result. Usingsimultaneous-equation model, our study examines not only the supply but also thedemand for auditors in Chinese B share market.We selected the sample within all the B share companies from 2001 to 2004 togeneralize the changes in Chinese audit market. The results indicate that the auditee'ssize, financial leverage, subsidiary numbers, and the industries covered by theauditee's business have significant effect on the audit fee charges. They also indicatethat the variables stand for substantial auditing risks, such as ROA, Opinion, Loss,Stock, Recint and Invint are not significant, which is quite different from the usualpractice of the Western developed countries' mature audit markets. Based on theresult above, we also table some proposal on risk-oriented audit approaches in China.The paper consists of 6 chapters. Chapter 1 introduces the research background.Chapter 2 summarized the big picture of Chinese audit market. Chapter3 reviewsresearch result and methodology of both domestic and foreign scholars. Chapter 4 isthe regression result of both single-equation and simultaneous-equation models.Chapter 5 and 6 summarizes the major contribution of this paper and put forwardsome suggestions on risk-based audit approaches in China.