A Study On The Scp Of Independent Audit Market In China

Chinese Independent Audit Market (CIAM) has grown greatly in nearly 30 years. But it was always in an invalidly competitive situation because of administrative intervention, regional protection and unfair competition etc.. As a current focus, its current situation and future development needs deep and careful analysis.The SCP framework of Industry Organization Theory is introduced in the thesis to analyze CIAM. Previous researchers always based on Chinese Stock Exchange audit market. With a different respect, the paper tries a new point of view:the whole CIAM in order to expose the current situation and inner discipline of CIAM. The paper is divided into four parts.The first part is introduction. It mainly introduces research backgrounds, main content, research methods and its innovation. It also includes literature review.The second part is analysis of CIAM structure. Analysis to CR4 and CR8, the marks of market concentration ratio (2002-2009) shows that concentration ratio of CIAM was greatly increased. The World Top Four accounting firms are sure to be in the leading position. The mark of CR4 reflects market shares of the World Top Four. Their rapid expansion in CIAM leads to the speedy increasing of market concentration ratio. In the paper, market concentration ration of Native Top Four accounting firm is clearly shown by eliminating the influence of World Top Four to CIAM with CR8 minus CR4. It can objectively reflect development and changes of CIAM. It is shown that concentration ratio of Native Top Four is raised with high speed. Its increasing speed is a bit faster than World Top Four but its market share is far lower than them. In CIAM, audit choices are mainly based on audit quality, audit market subdivision and fame of accounting firms. Audit market subdivision is most important. Factors that causing market subdivision include administrative factor, natural factors such as regional factor. Generally, barrier of access to CIAM are not advanced. Structural barrier is mainly composed of technique and cost advantages with professional specialty, effect of scale economy with big customer market and limitation of market capacity. Price competition is the usual strategy to prevent the entry. Certificate to Securities and Futures and Certificate to Certificated Public Accountant (CPA) for the staff in the accounting firm form regulated barrier of the government. Because of the common use of assets, sunk cost of accounting firms is low and quitting barriers is also low. But for CPAs, it spent a lot of time and energy preparing the examination for the certificate, and keeping and developing their professional ability by persistent study. So training and opportunity cost of CPA are the real quitting barriers.The third part is analysis of CIAM conduct. To reduce the price to compete is universal in CIAM. Being regarded as Confidence Article, customers like to choose audit service by prices, so accounting firms tend to reduce the price to compete with others. In China, charges to audit service are greatly different in different region and it needs formulating. Amalgamations between accounting firms are mostly guided by the government; spontaneous amalgamations are few and lack inner motion. Multi-channel management of accounting firms in CIAM just began to develop and un-audit profit covers less than 20% in the gross earning. At the same time, it should be noticed that multi-management action as a double-edged sword should be disciplined when being increased. Changes of accounting firms are various but some may affect quality of audit and supervision should be strengthened.The fourth part is analysis of performance in CIAM. Audit is a public product, so social benefit and accounting firms benefit should be both taken into account. So, in the paper labor capacity and audit quality are chosen as marks to measure market performance. It is stated that not only labor capacity of CPA but labor capacity of the staff in accounting firms are raised annually but a large gap between native accounting firms and foreign accounting firms still exists. Audit quality is analyzed from accounting firms and market demand in this paper. The researcher improves the method of using non-standard audit opinion ratio as a substitute mark to audit quality. It adds antecedent assumption about the truth of enterprise financial report in order that the method is more persuasive. In recent years, with the increase of capability and independence of accounting firms and with greater supervision, audit quality is gradually enhanced. But demands for high-quality audit product are lacking in the market, which became the main reason to restrict the improvement of audit quality. Market structure and market conduct apparently influence market performance. Among the factors, labor capacity of CPA and market concentration are in high positive correlation.