The Scp, Analysis Of The Paradigm Of China's Audit Market Structure And Audit Quality

The Certified Public Accountant (CPA) system restarted in China in 1980.The industry of CPA has been developed rapidly along with the establishment of corporation and the establishment and development of capital markets. The independent audit which implemented by CPA protect and promote the development of capital market. However, a series of financial and accounting frauds in capital market indicate that the quality of financial reports and audit reports is still not high. Not only management members of company but also auditors who are responsible for auditing produced a crisis of confidence to investors. With economic globalization and China's economic development, China's capital market has been gradually moving toward international. The rapid development of capital markets need to enhance investor protection, which is also a higher quality audit requirements. This article attempts to use SCP model in the research of audit market structure factors, which influence audit quality. Through comprehensive analysis of the status of each factor and its impact on audit quality, this article tries to give some advice to improve China's audit market.First, this article reviews the previous research on the factors which affect audit quality, it reviews and summarized these literatures in four aspects of market structure. In aspect of market concentration, the majority of studies have shown that audit quality is positively related to audit market concentration, but some scholars found that the relation of audit quality and audit market concentration is inverted U-function relationship. In current situation, the relationship is not yet reaches the inflection point, so it should improve the audit market concentration in order to improve audit quality. In aspect of the economies of scale, the previous studies focused on the existence of economies of scale. However, as an important part of audit market structure, few scholars research the relation between audit quality and economies of scale.In aspect of product differentiation, the majority of scholars believe that product differentiation exists on audit market, and the differentiations are auditor industry ?expertise, the studies found that audit quality is positively related to auditor expertise. However, scholars have different views on the existence of industry expertise in China. The results are quite different on the relation between auditor industry expertise and audit quality, some scholars have found that the quality of auditors and audit industry expertise is positively relevant, some scholars found that the positively relation only exist in the "big four", still some scholars found a negative correlation. In aspect of barriers to entry, the related research is still small, but the existence of barriers to entry has been recognized by scholars. The current study found that barriers to entry can "reduce competition," but the relation between audit quality and barriers to entry has to be studied.Then, this article introduces the generation, development and research framework of SCP model. And apply the research framework of SCP model in the research of audit market. Through analysis, the article argues that audit quality should be used as a measure of the performance of the audit market. In the framework of SCP model, the article researches the relationship between audit quality and market concentration, economics of scale, product differentiation, barriers to entry. This article argues the positive relationship between audit quality and the market concentration, economics of scale, product differentiation, and barriers to entry.Next, the article take a statistical analysis on the market structure of China's audit market from 2000 to 2008.This article found that the market concentration keep rising and audit market in China has been changed from competitive to oligopoly. In aspect of economics of scale, the study found economics of scale in large customers market. Big accounting firms enjoy the low-cost advantage bring by economics of scales because of different customers. In aspect of product differentiation, the number of accounting firms with industry expertise and the number of industry with industry expertise in accounting firms keep rising.Afterward, the article studies the relation between audit quality and the audit market structure in empirical analysis. The study finds that, different from hypotheses, economics of scale and barriers to entry reduce audit quality. Audit quality is positive relevant to market concentration. The results may be due to the insufficient competition caused by economics of scale and barriers to entry. The study also finds that the determinants of audit quality are not consistent in different audit market environment. The paper also finds that audit quality was also decided by the characteristics of the audited entity, this may indicate the "opinion shopping" behavior.Finally, this article gives some suggestions to solve the problems which found in study. First of all, the audit market environment should be improved. The market should improve the quality of the accounting standards, the quality of the auditing standards, and strengthen the supervision on audit quality. The responsibility of CPA and accounting firms should be increased and the investor protection should be enhanced. Second, audit market structure should be optimized. The market should improve the audit market concentration, lower barriers to entry, and made industry expertise work. Finally, it should reform the appointment of accounting firms and strengthening the supervision of accounting firms.