The Research On The Relationship Between Discounting Of Audit Firm And Auditing Independence

Auditing independence is the soul and the natural character of CPA auditing, and it is the core issue of auditing. But the "Enron case" of the United States and our country's "Kelon Electrical case" exposed that auditing independence existed a big problem, so it has become urgency to research and norm auditing independence of CPA. Independence is a very complex problem. There are so many factors that can influent auditing independence, but discount of audit firm is also a very important factor. Because the audit market concentration is low in our country, there exists vicious competition between audit firms. For gathering customers, the audit firms determine the initial audit price lower than the audit cost. In this thesis, relationship between discounting of audit firm and auditing independence is researched in order to regulate the provision of reference and recommendations for authorities.The thesis makes a further analysis into the influence of discounting of audit firm on audit independence. Based on the existing research achievements in this field, the motive of conspiracy between auditors and the audit clients is analyzed by combining with game theory. The audit firm is encountered "holding-up" problem in the initial audit, which is analyzed by using incomplete contract theory and the "holding-up" behavior. The conclusion is that it weakens auditing independence. The relationship between auditor and audit client is explained a bilateral monopoly relation by combining with supply and demand theory, which is a prerequisite to set up audit fee two-period model. Transaction costs are used of mathematical derivation and analyze whether discounting of audit firm affects the audit independence. On the base of normative study, the results of empirical analysis support the conclusion of this thesis. Meanwhile, the government should enhance disclosure of audit fee and promote mergers between small audit firms under the current environment. Credit rating agencies should be also set up. The appointment of auditors and other mechanisms should be reformed in order to enhance auditing independence.