The Research On The Relationship Between Audit Tenure And Audit Quality

In recent years, international economy has advanced forwards by experiencing up and down, so does overseas and domestic stock market. Audit, as an instrument to connect proprietors, management, CPA and other information users, has drawn widespread attention from all social sectors. The successive financial fraud cases bring auditing sector great pressure, and also spur this sector to improve auditing quality. Suffering from the subprime mortgage crisis in U.S.A in 2008 and then the worldwide financial crisis, auditing sector has almost directly become an attacking target, which is alarming enough for researchers to consider how to better ensure the authenticity of financial statements, improve the credibility of enterprises'financial information, and then better guide information users. Auditing is not only closely related to the development of CPA industry, but also has a positive impact on the development of the whole stock market and social economy. Researchers usually analyze auditing quality in terms of accounting firm, CPA, the conditions of entity etc. The influence of the tenure of auditing on auditing quality was first posed by American researchers. This problem has drew much more attention since Enron Scandal occurred. Arthur Andersen accounting firm had provided auditing service for as long as 16 years. It is worth reflecting that long-term cooperation may jeopardize the independence of CPA or bring about other problems. Therefore, in Sarbanes Bill, American Supervision department required researchers to work on these problems. Subsequently, supervision departments of many countries, based on domestic situations, formulated relevant rules and regulations on auditing of CPA. Through a series of revision, Chinese government regulates that compulsive shifting should been carried out for head CPA every five years. However, it does not mention about the tenure of CPA. Domestic research on the relation between tenure of CPA and auditing quality starts late and has yet to form a mature theoretical system. Due to the differences between Chinese and foreign stock markets, legal system, and corporate status, the applicability of compulsory shifting policy is open to discuss. Hence, most domestic researchers lead the study by employing domestic stock market data from the empirical perspective.This dissertation first dwells on relevant theories of tenure of auditing and auditing quality, and then appraises auditing quality by Degree of earnings management, which takes abnormal accruals as a substitute index to measure auditing quality and takes empirical tests about the influence on auditing quality by compulsory shifting of head CPA and tenure of accounting firm respectively. The result of tests demonstrates that our government's policy of compulsory shifting for every five years does not obviously improve auditing quality. It is illustrated in this dissertation that it is determined by China's special environment of legal system, corporate management environment and cost/benefit tradeoff in performing compulsory shifting policy jointly. At the same time, the result shows that the tenure of accounting firm has a notable effect on auditing quality. Therefore, based on the empirical result, this dissertation draws the conclusion that our government should formulate the compulsory shifting of accounting firm policy.