Companies’ Irregularity, Senior Executive Turnover And Audit Fees

The restriction of healthy development of Chinese stock market is that the listedCompanies’ operations are not standardized and always violate regulations. A series ofViolations are a heavy blow to investors’ confidence and destroy the normal order of Stockmarket. In order to maintain the normal order of stock market and Protect Investors’ rights,China securities regulatory commission and it’s subsidiary stock Exchanges investigate theviolation companies based on securities law, company law And the authority of state council,and announce the Punishment bulletins to stock Market. The Punishment bulletins containsinformation content which reveal the Severity of the violation behavior.The listed company’s interest-relevant groups contains investors,CPA,Government’ssupervision department, creditor, supplier, customer and it’s employees. The violationbehavior will lead to Potential loss which is Positive correlation to the Severity of theviolation behavior. We choose a Perspective from CPA to study the reaction to Punishmentbulletins and "Restoration measures" taken by the company to be punished response.CPA determine the risk tolerance level by perception of the risk, in the hope of obtainingreasonable Audit fees and keeping the audit risk within acceptable range. Therefore, listedcompanies’ violation behavior and its severity will affect the independent auditors’ auditpricing behavior. In this paper, we examine studies the Punishment bulletin and quantify theviolated We test the reaction of CPA to the variables， and we draw following conclusions:Firstly, CPA’s audit Pricing is correlation to the type of violation behavior. this thesisfinds that CPA firms are more likely to changing report material misstatement frauds higheraudit fees rather than disclosure frauds.Secondly, companies’ violation behavior will increase the possibility of seniormanagement turnover. Since companies’ violation behavior made the organizationallegitimacy compromised, the senior management turnover after companies’violationbehavior is a strategy to regain organizational legitimacy. The senior management turnoverafter violation behavior will moderates the positive relationship between violation behaviorand audit fees. With respect to the material misstatement violations companies, disclosureviolations companies’CEO (CFO) turnover more likely to moderates the positive relationshipbetween violation behavior and audit fees.