An Empirical Study Between Industry Expertise And Audit Quality In The Audit Market

In 2006, the promulgation and implementation of new auditing standards and the establishment of modern risk-oriented audit mode ascertained the development of industry specialization operation of Chinese accounting firms at the policy level. In 2007, Comments on promoting accounting firms towards big and strong published by CICPA, again explicitly encouraged Chinese accounting firms to explore ways of scale-development through industry specialization operation. In 2009, Several Opinions of Accelerating the Development of Chinese CPA Industry transmitted by the General Office of the State Council further put forward the ideas of promoting a sound and rapid development of Chinese CPA industry, which created a good opportunity for the CPA industry. Basing on these specific institutional backgrounds, concerning the whole Chinese audit market after the implementation of risk-oriented audit mode, this paper tries to research on the performance of industry specialization operation of accounting firms, including the issues of "why to insist on the industry specialization development "and "how to develop industry specialties in audit market", so as to bring forward some specific opinions of optimizing the structure of audit market, i.e. to explore the development space in the market segmentation and how to reach scale-development of big audit firms.This paper analyzes the institutional backgrounds of the Chinese audit market and explores the theoretical origin of the start up and development of industry specialization operation from the perspectives of modern risk-oriented audit theory and structure theory. On the basis of theoretical analysis, the paper conducts an empirical test on the A-share non-financial listed companies from 2007 to 2009, regresses on both the data of three years respectively and the summation of three years data. After some data filtering and controlling on variables like assets-liability ratio and operational cash flow, etc., it turns out that accounting firms'industry specialties and earnings management are negatively correlated, that is to say, firms with industry specialties tend to restrain earnings management. However, audit quality has negatively related with earnings management. High level of audit quality will result in less earnings management so as to improve the earnings reliability and information content of financial report.It is concluded that for the whole Chinese audit market, after the implementation of risk-oriented audit mode, the audit firms should pay more attention on the industry specialty strategy in the process of scale-development and industry-specific, so as to optimize the environment for the development of CPA industry.