Auditor Tenure And Auditor Quality: Based On Regulatory Effect Of Corporate Governance And Client Importance

In the early 21st century, a series of financial frauds casts doubt on the audit quality. Mandatory auditor rotations are requested from the regulators of all countries. But whether the longer auditor tenure will damage auditor quality is not clear. Although there are many discussions, they still don't arrive at the same conclusions. There are probably three different opinions about the relation of audit tenure and audit quality. One is positive correlation, other one is negative correlation, the other is reverse U model correlation. So the mandatory auditor rotation system is not wholly supported by theory. Especially the audit market in china is incomplete where high audit quality is not wanted. Even though mandatory auditor rotation is not requested, it is very common that the clients fire the accounting firms. In this case if the accounting firms are quested to rotate, they will face great pressure so that the accounting firms will lose independence and reduce auditor quality. So the article will continue to research about the effect of the auditor tenure on auditor quality. But because the relation between the auditor tenure and the auditor quality is complex and it is hard to be sure of the relation, so the article will don't research the relation directly. In particular, the article will begin with corporate governance and client importance the key factors affecting auditor quality to research the relationship between auditor tenure and auditor quality under the influence of regulatory effect, which there are few research about at home and abroad. The corporate governance and client importance are at most regarded as controlled variables, but few people research conjunctive influence of the both and auditor tenure on auditor quality.In order to make up the earlier research blank, Through the methods of multiple linear hierarchic regressions ,the article carry out empirical research on the regulatory effect of corporate governance and client importance referring to documents at home and abroad in accordance with Chinese actual conditions based on the elaboration and analysis of relative theory. The article study the companies which issue A shares in Chinese Shanghai and Shenzhen Stock Exchange markets between 2007 to 2009 .It uses the company's discretionary accruals to measure auditor quality and use comprehensive governance index to measure corporate governance based on factor analysis and use the ratio of logarithm of assets of a certain client and logarithm of assets of all clients of the accounting firm to measure the client importance. This article will test the regulatory effect of corporate governance and client importance on the relation of auditor tenure and auditor quality from two aspects of the accounting firms replacement and accounting firms continuous audit and at last this critical will give poleis and suggestions.According to the empirical results, accounting firms replacement and auditor quality appears in a obvious negative correlation and auditor tenure was negative correlative with auditor quality but it is not obvious. It shows that the extent of the audit when the accounting firm is replaced restraining earnings management is less than the continuous audit, but it is not be discovered that the longer the continuous audit is the better the auditor quality. The client importance and auditor quality appear a obvious negative correlation. It indicates that if the client is very important to it, the accounting firm may reduce auditor quality. The corporate governance is significantly positive with auditor quality. Good corporate governance helps to raise auditor quality. The client importance has a negative regulatory effect on the relation of auditor tenure and auditor quality .Under higher client importance condition, an increase in auditor tenure will do greater harm to auditor quality. The corporate governance has a positive regulatory effect on the relation of auditor tenure and auditor quality. Under better corporate governance condition, the harm to auditor quality due to an increase in auditor tenure will smaller than under worse better corporate governance condition. But the both regulatory effect is not significant.