| In market whose legal system is not perfect, the legal risk faced by auditors is relatively low, and regulators tend to take more stringent regulatory actions to compensate for defects in the legal system. Regulatory actions of regulatory authorities have a more significant impact on auditors’behaviors. This article conducts a research on factors that influence audit effort in China audit market whose legal system is not perfect. This article mainly focuses on the effects of risk of material misstatement (RMM), regulatory sanctions, client characteristics and the level of audit fees on audit effort. In this paper, I use the product of engagement team size and days cost by the engagement as the measure of audit effort, using Shanghai and Shenzhen A-share companies as my sample. The empirical result indicates that RMM, client size, the number of subsidiaries, audit fee per asset are positively related with audit effort. Auditors that are punished during the fiscal year showed a significantly higher level of audit effort than auditors that are not punished. However, there is no significant difference between punished audit firms and unpunished firms in term with the level of audit effort. But punished audit firms show a significantly lower level of audit fee than unpunished firms, which suggests that regulatory penalties can trigger the reputation mechanism and reduce the bargaining power of punished firms. I also conduct a comparative study between the factors that influence audit effort and the factors that influence audit fee, the result of which suggests that factors that influence the former and the latter are different. The research on audit effort is different from the existing research on audit fee and has new meaning. This paper clarifies factors that influence audit effort in imperfect China audit market, and provides theoretical support on regulatory measures combating "price competition". Thus, this paper has important theoretical and practical significance. |
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