Economic Cycle, Audit Supervision And Audit Quality:Empirical Evidence From Financial Statement Audit Of Listed Companies In China

Currently, the most important background of the audit environment is economic fluctuation. Previous researches on audit field mainly focus on the micro level; however the micro-level activities will inevitably be affected by macroeconomic factors, so this paper will break through this limitation and investigate audit activities in the context of the macro economic cycle. After the review of the previous audit scandals and audit supervision, we found that the audit quality and audit supervision are showing a certain cyclical. It is still little research to investigate their cyclical phenomenon, so we will discuss the relationship between economic cycle, audit supervision and audit quality this paper, in order to make up for this gap.After the review of some relative literatures home and abroad, we firstly analyze how the economic cycle affects audit quality, mainly through affecting the needs of audit quality stakeholder and then have an impact on audit quality. Then, based on Public Interest Theory of the audit supervision, we analyze the relationship between economic cycle and audit supervision. Finally, based on the findings of the previous audit supervision that it has positive effect on audit quality, we analyze the audit supervision effect in the different stages of economic cycles.On the basis of theoretical analysis, we select the listed companies on the Shenzhen Stock Exchange and Shanghai Stock Exchange as our research sample, using the multivariate linear regression model to investigate the relationship between economic cycle, audit supervision and audit quality. The main conclusions of this paper are as follows:firstly, the audit quality is different in different stages of economic cycles, and higher in the economic upturn than the economic downturn period; secondly, the audit supervision also exist differences in different economic cycle periods, and higher in the economic downturn period than the economic upturn, which confirms the procyclicality of audit supervision; thirdly, we divide the punishment of auditor samples into economic rise and decline period and then investigate the effect of auditor punishment on audit quality, we find that the auditor issued less modified audit opinion in the economic upturn after being punished while we can’t find this phenomenon in the economic downturn, and from the discretionary accruals perspective, we find that audit fee has decreased significantly in two stage.Overall, this paper is based on the background of the economic cycle and in it, we put the macro-economic cycle issues and micro audit quality and audit regulatory issues together, expanding the traditional economic cycle theory and audit theory.At the same time, the empirical results of this paper also provide a theoretical support for the stakeholders to make relevant decisions. Therefore, the results of this paper have a positive significance for theoretical research and practical activities in the future.