Economics Perspective On The Quality Of Independent Audit

Independent audit quality refers to the aggregate of inherent characters and external characteristics of auditor's services by which constitutes the ability to increase the creditability of the financial report. It consists of audit report quality and audit work quality. Its fundamental characteristics lie in relevance and reliability of the audit information. The conditions of auditor, client, auditing process and audit environment have a great influence on the audit quality.From the view of economics, independent audit quality depends on the mutual reaction between the social needs for independent audit and the auditor's capacity. The auditor's independence and performance determine directly the audit quality while clients influence the audit quality indirectly by piloting the auditor's behavior through market choice. In china, the imperfect corporate governance leads to inadequate voluntary demand for independent audit, the lack of which results in the lack of the CPA's motive to improve the audit quality. Meanwhile the regulations imposed on the CPAs may encourage CPAs' taking a risk of reporting an untrue or illegal opinion. So the author makes some suggestions that audit quality can be enhanced through perfecting corporate governance and strengthening the supervision on the CPA industry.In view of the existence of asymmetric information, there is an audit market failure. So it is crucial for institution to restrict the auditor's behavior. In essence, modern independent audit institution can be looked upon as a serial of complex and delicate contracts to solute the problem of asymmetric information and to ensure the audit quality. Whether a CPA maintains consistently his high audit quality depends on whether he persists in the Trust principle. From the view of the theory of the game, Trust is an informal constraint in which the players scarify the interest in the short run for the interest in the long run. Whether it can be self-fulfilled depends on the factors such as the clarity degree of property rights, the penalty imposed on the fraudulent auditor and so on. Through the survey of the circustoms in China, the author discovers that at present there is a lack of institutional basis to "produce Trust". Finally, the author makes some suggestions on our institutional arrangements to construct the CPA's Trust in China.