The Research On The Effectiveness Of Regular Rotation Of Audit Firm

For a long time, researchers have been searching for solutions in fighting high-level fraud and corruption in auditing market at home and aboard. One of the most effective methodologies based on audit firm rotation is proposed to remedy the existing deficiency in audit independence, which has attracted great attention of correlative fields especially after Enron Scandal. There is no doubt that in order to improve the audit independence, the rotation of the CPAs and public accounting firms has been emphasized and adopted by government supervision domestic and overseas. So, what on earth will auditor tenure affect the audit independence in China's auditing market? Is it necessary for China to apply the system in China's auditing market?The dissertation makes a further analysis into the influence of audit firm rotation to audit independence. Based on the existing research achievements in this field, a deep probe in the auditor's motive of action is conducted in detail by using the hypothesis of the sense of limited rationality, opportunism behavior tendency and moral hazard, and combining with agency theory. In addition, the causes of poor audit independence are deeply explored and the result indicates that audit firm rotation is an effective solving thought for this problem. A comprehensive induction is firstly performed for analyzing the audit firm rotation by integrating many correlation theories, such as psychology, game theory and organizational culture, by analyzing the conclusions and background of study report issued by GAO in 2003. A further investigation of the relationships between audit firm rotation and audit independence is then developed to verify the argument of this dissertation by analyzing the financial fraud occurred in Nanjing Zhongbei Group. Meanwhile, some proposals and policy suggestions are put forward to supporting accounting firm rotation and satisfying the need of reformation in our country's audit market. They are to consummate laws of register accountant and related regulations, to strengthen the supervision of audit industry and enhance the professional ethic education, to improve administrative structure of corporation, to reform the audit fee system, and to promote the reform of audit firm organization form and so on.