An Empirical Study Of Affecting Factors On The Enforcement Actions By CSRC Agaist Auditors

To regulate China’s capital market and improve its operational efficiency,regulatory authorities in China strictly inspect and punish listed companies that havecommitted financial statement frauds and CPA firms that are responsible fordetecting and reporting those frauds. Based on the sample of listed companiesinvolved in the enforcement actions by China Securities Regulatory Commission(CSRC) from2001to2011and the corresponding CPA firms and taken into accountthe changes in the law and regulation environment of China’s capital market, thisstudy uses statistic description and regression analysis to examine the main causesand influencing factors of enforcement actions by CSRC against auditors. Thefindings of the thesis can effectively help CPA firms to improve audit quality andavoid audit failure and punishment from CSRC.As for the relationship between financial statement fraud types and auditorsanctions, this thesis finds that CPA firms are more likely to be sanctioned by theregulators for failing to detect and report material misstatement frauds rather thandisclosure frauds. Further analysis of the material misstatements indicates thatauditors are more likely to be sanctioned for failing to detect and reportrevenue-related frauds rather than assets-related frauds. As for factors that influenceenforcement actions against auditors, this thesis finds that CPA firms with strongerindependence are less likely to be sanctioned by regulators and that compared withCPA firms in the form of limited liability, those in the form of partnership are lesslikely to be sanctioned by regulators. However, the size of CPA firms cannot helpthe firms to avoid being sanctioned by CSRC.