Empirical Research On The Influence Of Mandatory Auditor Rotation On Audit Quality

Since the born of Certified Public Accountant(CPA) audit, audit quality has been the focus of audit. Recently there are a lot of fraudulent financial reports in the world,for example include Enron, World.com and Arthur Andersen's failure, and etc.. The audit industry got into a distrusted phase all over the world. The issue of mandatory rotation of audit companies has been disputed for long, and recently series of financial scandals bring it to many countries'notice again. Mandatory audit-firm rotation has been put up as a useful way to improve audit quality.This paper attempts to demonstrate the core of the issue by analyzing related theoretical views and empirical evidences. This study examines whether audit tenure is associated with audit quality. According to available theory researches, whether the mandatory rotation of audit company should been put into effect or not is determined by the whole impacts which it makes to cost, price, market competition and audit quality. Empirical researches had examined the relations of audit tenure and audit quality by various ways. But uniform agreement has not been reached about the mandatory rotation from the theory or the empirical researches. As a result of the Chinese unique legal system environment, the market order, the system background and so on, American real diagnosis result not necessarily represents Chinese actual situation. The thesis'main goal lies in discussing the connection between the Mandatory Auditor Rotation and audit quality under China's background, and its action that it improves the audit quality in what kind of degree, in order to provide some experience evidence.1. Main Content and ViewpointThe audit quality is always a focal point which the people pay attention. Revolving the central content that whether implementing the mandatory auditor rotation can enhance audit quality, this article divides into five chapters to perform and prove. It's main content and viewpoint is as follows:ChapterⅠProlegomenonFirst, this chapter introduces the research background of this thesis. Next, it introduces this paper's main content, research technique and characteristic. This article analysis the influence of mandatory auditor rotation on audit quality. After analysis advantages and disadvantages of the mandatory auditor rotation combining our country's present situation, the paper checks out the hypothesis using statistical analysis'description statistics and the Logistic return model, and it establishes the relation of mandatory auditor rotation and audit quality model. It demonstrates the supposition on the proof using the statistical analysis method. This thesis mainly uses research techniques including: the literature review and appraisal, the empirical analysis and the standard analysis.ChapterⅡLiterature Summary This chapter carries on the review to the domestic and foreign correlations literature, in order to clear about the paper the research foundation and the breakthrough direction.ChapterⅢResearch Narration of Audit Quality This chapter first elaborates the audit quality connotation, influence factors and its technical and independent characteristics. Then, it unifies our country's actual situation and elaborates the vital significance of audit quality. This chapter's main goal is to make clear about the core content of the main research body and this paper's research value.ChapterⅣTheoretic Analysis on the Influence of Mandatory Auditor Rotation on Audit QualityThis chapter first annotates "the mandatory auditor rotation" on the foundation of foregoing theoretical analysis.Next, the author elaborats the intrinsic necessity of mandatory auditor rotation from five aspects.They are: (1) it is advantageous to form audit role's formal independence, (2)it is advantageous to form and strengthen audit work essencely independent, (3)it may mold "connect" consciousness, (4)it may promote overall quality of the audit team, (5) it may prevent the contrary behaviors.Finally, as a system arrangement, the mandatory auditor rotation has been the given the certain degree value by various countries. This article has carried on the elaboration about this system in various countries'application situation, to obtain some experiences.This chapter is one of this paper's core contents, and it is the rationale of the empirical analysis.ChapterⅤEmpirical AnalysisThis is the key part of the whole article, and some new ideas are brought forth. On the foundation of theoretic analysis, it proposes the hypothesis that mandatory auditor rotation can improve audit quality.In second part research design, taking China A share listed companies in the period of 2003 to 2004 as samples, we refer to the domestic and foreign researcher's models and unify this article's actual research content and we work out a model of mandatory auditor rotation and audit quality by using logistics'regression analysis.The model is:|DAi|=β0+β1Switchi+β2Big10i+β3Sizei+β4ROAi+β5DebtRi+β6Agei+β7Year03i+εi The third part is empirical analysis, its findings indicate that the relation between mandatory auditor rotation and audit quality is plus after controlled other variables influences. But the correlation coefficient is smaller. It proves that mandatory auditor rotation has promoter action in certain degree.The fourth part suggests for the research conclusion and the policy. This part summarizes the front empirical analysis results. According to the above, it put forward several related policies proposals combining our country's actual situation.ChapterⅥResearch Conclusion and Policy Suggestions The author also unifies our country the actual situation and analyzes the questiones appeared in the actual execution. It is the reason that mandatory auditor rotation not to be able to enhance audit quality very well. Then, the author proposes some policy suggestions upon above analysis. Last, I conclude the research significance and disadvantages.2. Main Contributions and Innovations:So far as the research contents, according to the incomplete statistics to relevant documents, there are still relatively few special documents on the influence of mandatory auditor rotation on audit quality, and mostly concentrate on the theoretical research in this field. The comparatively systematic discussion on subject in this thesis has certain perspective.So far as the research angle, to some extent different from some past research angles, it is a new angle to regard audit quality on the background of mandatory auditor rotation system. This is a newer visual angle.So far as the research approach, what this thesis is adopted is the mixed method of theoretical analysis and empirical analysis. Through mechanism analysis, we have explained some questions about the proposition; through empirical analysis, we have proved the relation and influence degree of the mandatory auditor rotation and audit quality. Two kinds of methods confirm each other, have strengthened the explanation strength of argument, and have supported the proposition.