The Study On The Relationship Between Regulatory Risk,Firm Size And Audit Quality

The existing literature has confirmed that there is a significant positive correlation between the scale of accounting firms and audit quality. The existence of a positive correlation between the scale of accounting firms and audit quality has been controversial according to domestic existing research. This article review this argues by the practice environment. In this article, earnings quality is using to measure audit quality level, the difference between actual control of listed companies control rights and cash flow rights is using to measure the regulatory risks of this company. The study found that the large accounting firms only provide high quality audit service for customers with higher regulatory risk. Further research suggests that the environment which accounting firms face has improved, large firms will provide high quality audit services for all customers. Positive correlation between audit quality and firm size is no longer dependent on regulatory risk. So in the case of relatively weak legal environment, strengthen the supervision to promote the public accounting firm as a whole to improve the quality of auditing services. Strengthen regulation is prompted a public accounting firm to provide high quality audit service as effective mechanism.This paper is divided into five parts, the first part is the introduction of this paper, mainly introduces the research background of this paper, the research significance, research ideas and methods. The second part is the literature review. Firstly, introduce the related theoretical basis. One is a certified public accountant audit related theoretical basis, the second is related to the control, and cash flow rights theories. Secondly, introduces the domestic and foreign existing literature represented for several kinds of views on the relationship between audit quality and firm size, this paper introduces that the domestic and foreign existing literature use earnings quality to measure audit quality and use the degree with the difference between control and cash flow rights to measure regulatory risk. The third part introduces the research design. This part puts forward the research hypothesis, selects of the dependent variables and independent variables, establishes related model. The fourth part is the results of the study and empirical analysis. A total of 4585 samples are selected for empirical data analysis from the year 2005 to 2010. In the presence of regulatory risk, there is no positive correlation between accounting firms and audit quality. In public accounting firms face higher regulatory risk (greater than 30%), large accounting firms more likely to provide the high quality of auditing services. After 2007, the influence of regulatory risk to the relationship between the scale of accounting firm and audit quality has been weakened. The fifth part is recommendations. In consideration of the legal environment in China is weak, the government should strengthen supervision of certified public accountants.The innovation of this paper lies in:the existing literature only consider the relationship between audit quality and the scale of the accounting firms or only consider relationship between audit quality and the regulatory risk (the difference degree between control rights and cash flow rights).This paper considers the relationship between firm size and audit quality with the existence of regulatory risk.