The Research On The Effectiveness Of Mandatory Rotation Of Audit Firm

In recent years, domestic and foreign stock market broke out a series of financial fraud, no doubt that the long audit term which lead to the reduction of audit independence is an important reason for the occurrence of such incidents. In order to improve audit independence, relevant persons put forward a variety of approaches, the mandatory rotation of audit firms is one of them. In2004, our country has been implemented the regime within the scope of central enterprises, which has caused a heated discussion among government regulators, self-discipline departments and the CPA profession. Whether to implement the regime has been the debate focus between the theoretical and practice circles. So in China’s audit market, what’s the relationship between audit independence and audit term? Whether the mandatory rotation of audit firms implemented in the central enterprises can be extended to the entire listed company?This article is limited to the discussion of the relationship between mandatory rotation of audit firms and audit independence. On the basis of existing research results at home and abroad, based on principal-agent theory, and drawing on three classic assumptions of economics, focusing on the motives of the audit firm to make economic analysis, to explore the reason of lack of audit independence between China Certified Public Accountants and CPAs, clearly the implementation of mandatory rotation of audit firms regime is one of the effective measures. Then through the use of containment theory, game theory and other theories, to analyze the relationship between the mandatory rotation of audit firms and audit independence from different perspectives, discussing the view that the mandatory rotation of accounting firms can enhance audit independence. Then, through analyzing the fund black hole problem in Nanjing Zhongbei Group to further evidence of the previous theoretical analysis and normative analysis of the conclusions drawn in the reality of China’s implementation of the firm’s rotation system. Finally, I propose that part of the audit firm rotation implemented in the central enterprises should be promoted to the entire listed companies and put forward some of the institutional arrangements of policy recommendations for how to carry out the implementation of mandatory rotation better.