| This paper researches on the impact of administrative sanctions on China’s audit market, based on the functional theory of legal responsibility and the features of the demand in the audit market, with regard to the response of the subject and object of the audit market to administrative sanctions from the China Security Regulatory Commission. Taking the IPO audit market and Annual Report audit market of the accounting firm from 2001 to 2012 as research samples, the research conducts the empirical analysis on the impact of the administrative sanctions on accounting firm’s audit quality, as well as the impact on the audit clients’ choice behavior, so as to examine the effectiveness of administrative sanctions mechanism on China’s audit market. The study illustrates that at the stage of the accounting firm’s behavior, the administrative sanctions do not help improve the accounting firm’s audit quality; there is no deterrent for the large-scale firms as well; only when the level of penalty severity increases to a certain extent, accounting firms will have a tendency to improve their audit quality. At the stage of the audit client’s choice behavior, audit clients, whether in the choice of IPO audit service or the Annual Report audit service, will tend to select the accounting firm that has not been sanctioned; for the large-scale firms, the market share of the IPO audit market will not be affected by administrative sanctions, but the market share of the Annual Report market will decrease after the administrative sanctions; similarly, the market share of the IPO audit market will not be affected by the severity of the penalty, but the market share of the Annual Report market will be severely affected, and with severer penalties, client dropout rate increases. The results provide a basis for regulators to strengthen the penalties, and urge the accounting firm to take the initiative to improve the audit quality so as to get the positive incentives from the regulators. |
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