A Study On Differential Audit Pricing And Audit Collusion

The Stock market of China so far has been occupied an important position that cannot be ignored in the sustained growth of national economy. However, illegal violation of Chinese listed companies occurred frequently, many of which involved incidents of audit failure and audit collusion, resulting in the legitimate interests of medium and small investors suffered huge losses, and impede the function of securities markets optimize the allocation of resources effectively. As a economic tie connecting listed companies with auditors, audit pricing is an important part of the process of the audit mechanism in the specific operation, and therefore plays an important role in the audit practice of academic research. In addition to the traditional research of audit pricing factors, many scholars recently began in-depth study of the relationship between a particular factor (eg, earnings management, auditor changes) and audit pricing, but the research of the relationship between securities market regulation signal (punishment bulletins) and audit pricing is still rare. To this end, this study attempts to analyses the impact of the regulatory intensity and audit service pricing to the choices of optimal strategy of agents and auditors at the condition of a specific regulatory signal from the perspective of game theory, and use a large sample empirical data to examine the audit pricing characteristics of the illegal listed companies and whether the characteristics reflect audit collusion.This study selected the illegal listed companies which been punished by the regulators during 2003-2008 as the target. First, an incomplete information dynamic game model of agent fraud and audit collusion is established. And then a two-step empirical study is launched based of the model analysis:the first step is to study the audit pricing features of illegal listed companies; the second step is to examine whether those features reflect audit collusion. Through theoretical analysis and empirical research, the following useful conclusions are obtained:In theory, the optimal policy choices of an agent of listed companies and the auditor are dependent on the inference and the parameters of each payment. The higher audit pricing, the greater the likelihood of fraud collusion occurred; the greater supervision, the less likely occurrence of collusion. And when at the same time strengthen supervision and improve the audit pricing, the possibility of collusion depends on the difference between the influences of higher audit pricing and greater supervision to the collusion.The empirical results show that audit pricing has a significant positive response to the signals of punishment:the audit pricing significantly increased after the penalty; the audit pricing of the punished companies is much higher than that of unpunished companies. Further, both from the improvement of audit opinion point of view, or from the audit Change point of view, high prices does not reflect the audit collusion.