China's Audit Market Mechanism

With the development of capital market, more and more fraudulent financial reports were disclosed and more and more audit failure happened. Investors, people with related interests of listed companies and the public began to doubt the audit quality provided by accounting firms. In recent years, international accountant profession who was involved in false financial reports was often disclosed. It not only caused trust crisis to accountant profession but also made people doubt the validity of audit market mechanism. Meanwhile, domestic audit market was not calm, and listed companies often provided fraudulent reports, while certified public accountants provided fraudulent audit reports for those reports. Those incidents not only affected certain certified public accountants and accounting firms, but also imposed negative effects on the whole accountant profession. Moreover, healthy relation between supply and demand was not built yet, low fees often took place in competition, audit fees couldn't reflect the value of audit, the signal transmission function was difficult to work, the government's improper intervention still existed and it was difficult to build an independent audit market. Due to the problems above, we should adjust, improve and develop audit market from the perspective of audit market mechanism. We should also make sure the function of audit market could support the independence, objectivity and impartiality of certified public accountants.This article analyzed the problems of audit market mechanism from its three essential factors including supply and demand, fees and competition and proposed some suggestions.There are four parts in the article.The first part, "Introduction". This part consisted of the writing motive, review of domestic and foreign researches and representative persons, and explained the thinking, methods and innovations of the article.The second part, "The outline of audit market mechanism".This part introduced some basic theories of audit market mechanism from the perspective of supply and demand, audit fees and competition.The third part, "the problems of audit market mechanism in our country".This part analyzed the problems in audit market mechanism in our country.The fourth part "Several solutions to improve audit market mechanism in our country".This part proposed some suggestions aiming at audit market mechanism in our country. The author suggested the market method as the main method with government's supervision as an auxiliary method to improve the relation between supply and demand, give guidance to effective demand, charge proper audit fees on the basis of government's instruction and change the disorder in competition as soon as possible to put proper distribution of audit resources into practice.