Empirical Research On Audit Quality And Audit Tenure

There are a lot of discussions about the relation of audit quality and audit tenure. Some scholars consider the relation of audit quality and audit tenure is positive correlation; some scholars consider the relation of audit quality and audit tenure is negative correlation; some scholars consider the relation of audit quality and audit tenure is reverse U model correlation. The purpose of this article is to test whether the relation of audit quality and audit tenure is correlation and test audit quality in different audit tenure. In the end author gives advices about how to improve audit quality from the angle of audit tenure.This article chose companies'data from 2003 to 2005, which were obtained by Shanghai and Shenzhen Stock Exchange. Then use adjusted-Jones model to estimate the company's discretionary accruals, and use these data as the index of audit quality to carry out empirical research on the relation of audit quality and audit tenure.Different from domestic scholars'empirical model, this research not only uses regression analysis of audit tenure, but also uses regression analysis of dummy variable and regression analysis of dummy variable multiply item. The results indicate that the relation of audit quality and audit tenure is reverse U model correlation. When the audit tenure is six years long, the audit quality is the best. The results also indicate that audit quality is higher in the long audit tenure sample than in the short audit tenure sample. According to the empirical results, the author suggests government not carry out audit tenure compulsion to improve audit quality, but take care of the company whose tenure is too short or too long and build up the audit compensation system.The paper includes five chapters as follows:Chapter 1 is the introduction of audit quality and audit tenure. This chapter introduces the definition of audit quality, the significance of audit quality and the influence factors. It also introduces the definition of audit tenure and discussions about the relation of audit quality and audit tenure. Chapter 2 is literature review. The discussions about the relation of audit quality and audit tenure are classified by three categories: positive correlation, negative correlation, reverse U model correlation. The author concludes the excellence and shortage of both foreign and domestic academic literatures in this field, introduces the significance of the research on audit quality and audit tenure.Chapter 3 provides details on the research designs. First the author supposes research hypothesis and research design. Then explains how to weigh audit quality, chose the control variable, establishes empirical research model. In the end it is the data and sample of this empirical research.Chapter 4 presents the empirical results of this research. After test the descriptive statistics, the regression of audit tenure, the regression of dummy variable and the regression of dummy variable multiply item, the empirical results indicate the relation of audit quality and audit tenure is reverse U model correlation, the audit quality in the long audit tenure sample is higher than it in the short audit tenure sample.Chapter 5 describes conclusions, advices and the creations & shortages of this article.