| The system of auditor periodic rotation is considered to be one of important ways of improving auditing quality. However, the practice of the system seems to be a controversy. So far, the system has been put into practice in China for more than three years. The effectiveness of executing the system is a common topic of academic and practical area. The essay reviews previous study on this topic and A-share listed firms that have periodically rotated auditors during the period form 2003 to 2005 will be selected as research sample. Basing on whether or not the listed firm changes the accounting firm, the sample will be classified into two group—internal auditor rotation group and external auditor group. The absolute value of discretionary accruals estimated from adjusted cross-sectional Jones'model will be employed as the measurement of auditing quality. The essay tests the relationship between the periodic auditor rotation and auditing quality so that the influence of executing auditor periodic rotation system can be analyzed. I find that, the earning quality of company that has executed internal auditor rotation is not significantly different from the last year's earning quality; and company that has executed external auditor rotation has significantly lower earning quality than the last year's and than the companies that have executed internal auditor rotation. However, after further analyzing, I find that company executing external auditor rotation experiences more discretionary accruals but higher auditing quality. The essay then concludes that internal auditor rotation cannot improve auditing quality, and external auditor rotation leads"Audit Opinions Shopping"phenomena. Basing on those conclusions, the essay tries to make some suggestion that in order to get better result, the overall auditor's qualification and accounting firms'internal controlling quality should be improved, and the supervision and information disclosure system should be enforced.There is something supposed to be special in this essay. The sample includes all data since the beginning of auditor periodic rotation system. And the sample has been classified into two groups, which are internal auditor rotation group and external auditor rotation group, so that rotation effect can be tested respectively. Furthermore, basing on the external auditor rotation group, I find that company purchases its auditing opinion by external auditor rotation.The essay is composed of four parts. Chapter1 is the literature review. Both of abroad and domestic literature about the topic is reviewed, and the literature is classified by the effect on auditing quality or auditing cost. Chapter2 is research design. In this chapter, research hypothesizes are presented, as well as the choice of variable and the foundation of regression model. Chapter3 is result of empirical study and analysis. In this chapter, some empirical evidence and analysis followed is presented. The result presents that auditor periodic rotation didn't improve auditing quality effectively. Chapter4 make some conclusion and suggestion, and then the further improvement and shortage of research is also discussed. |
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