Study On The Correlation Between Auditor Firm Industry Expertise And Auditing Market Performance

Independent audit system is one of the basic system which is conducive to the healthy and orderly development of capital markets. The good performance of the audit market is a guarantee to achieve this goal . Since 1993,KPMG restructured its organizational structure according to the service lines, the big four international accounting firms have shown the characteristics of professional management of the industry. Industry expertise has been widespread concern of foreign researchers as a major competitive strategy of the international accounting firm. Domestic academia pay less attention to the industry expertise and a large number of documents about accounting firms study the size (the independence) of firms. In this paper, we theoretical analyze and empirical test the relationship between the industry expertise of accounting firm and auditing market performance.This paper introduces the content of the auditing market performance on the basis of reviewing the literature at home and abroad, theoretical analyze the relationship between the industry expertise of accounting firm and auditing market performance and propose two hypotheses. We use all the A-share listed company btween2007 to 2009 for the overall study and use empirical methods to examine the correlation between the two.First, we use the absolute value of manipulated accruals profits which is estimated buy Jones model to measure the earnings quality. After controlling the other variables affect the earnings quality, we found significant negative correlation between accounting firm industry expertise and the absolute value of manipulated accruals, indicating that the development of firm industry expertise can improve auditing quality. On this basis, we empirical test the relationship between the accounting firm industry expertise and auditing fees. The results show that there is a positive correlation between accounting firm industry expertise and audit fees. This indicates that on china's A share market, the accounting firm has the industry expertise to provide customers with differentiated auditing service and getting high audit fees, rather then to expand market share and achieve economies of scale to reduce costs.