Correlation Of The Public Company Accounting Conservatism And Audit Quality

In recent years, a series of financial frauds cases occur frequently such as Enron Corporation, Kelon Crisis, Green Land and so on. These fraud cases affect the development of capital market healthy and orderly and also led to the credit crisis of public accounting firms. CPAs show audit report through after working as agents of business owners and manager. The audit reports affect the loan decision of creditors, investors and potential investors. Therefore, the quality of the audit report has been an issue of common concern. Currently, public accounting firms face greater risks and challenges for that the strengthen of our legal system and supervision. So the public accounting firms urgent to improve the audit quality to reduce risk.Accounting conservatism is also known as prudence. In1992, China stemed the enterprise accounting conservatism in accounting principle of the "Accounting standards" for the first time. After several changes of accounting system, application of conservatism principle is strengthened. A large number of studies show that accounting conservatism can improve the quality of financial information as characteristic and requirement of the accounting information. More cautious accounting information can contain the financial risk, operational risk, and improve the enterprise value. The domestic and foreign research about accounting conservatism mainly concentrated in two aspects of the impact on the cost of financing and investment efficiency. Its research about the influence of audit quality is little. This is also the original significance to research the relationship between accounting conservatism and the audit quality in order to improve the audit quality of CPA from increasing the application of accounting conservatism principle and so on, reduce the gap between the "Four Big" audit quality and our local accounting firm and enhance the vigor of the capital market finally.In this paper, it summarized previous research about Accounting Conservatism and the audit quality. Then it analyse the relationship between accounting conservatism and audit quality with a shares of listing corporation data between2009and2010based on the relationship theory of "agency theory" and "accounting conservatism and the quality of financial information and audit quality". Next, it measure the sensitivity using net market value ratios measure the accounting conservatism. In the process, it uses the method of least squares correlation with using the audit fee as audit quality and accruals as accounting conservatism. The study found that the accounting conservatism affect audit quality positively and remarkably.It means that the accounting conservatism of the company is better, the audit quality is higher.Next, this paper took samples from auditing by "Big Four" and "non-Big Four " to observe the different influences that the accounting conservatism impact on audit quality. Then we found that accounting conservatism has a positive effect on audit quality. However, it is not very significant under "Big Four" audit unit and it has a significantly impact on the audit quality when audited by "not Big Four". We regress with the net value and found the same results. This shows that, the audit quality of the local accounting firms in China is more dependent on accounting conservatism of its client compared with the international "Big Four". The accounting conservatism is better, the audit quality is higher.This paper proposes to enhance the implementation and moderate implementation of accounting conservatism principle in our enterprises based on the enlightenment. Finally, it puts forward suggestions and countermeasures to improve audit quality from the view of local accounting firms, market law and regulatory.