On The Relationship Between Client Importance And Audit Quality:Moderating Effects Of Corporate Governance

With the rapid developing of market economy in China, the capital market has highly increasing demand for new financial products to meet the demand of the capital. External audit can give assurance for the financial statements, reduce the possibility of financial misstatements and the financial costs as well as ease information costs. As a result, external audit plays a key role on helping a lot of listed companies get capital from the capital market, which is conductive to the healthy developing of Chinese economy.Auditors lives on the professional knowledge and brand reputation. They get material benefits for their service from the clients. Then the academia and practice used to pay close attention to the relation between audit quality and CPA firm economic dependence of an important client. A large number of the listed company audit failure cases on the world let us not only focus on the audit failure cases, but also make the auditor’s independence by the social public widely questioned. What’s worse, the academia and practice begin to concern about financial statements financial statements audit quality. In particular, some important audit clients of audit failure make people have reason to doubt that importance and believe that the customer will adversely affect the quality of audit. In recent years, the number of articles which focus on the relationship between client importance and audit quality is growing rapidly, enriching the relevant research literature. A large number of empirical articles use different indicators as substitution variable of client importance and audit quality importance to study the customer relationship with audit quality. To our disappointment, most of the studies just remain research on the relationship between client importance and audit quality, which consider nothing about the audit environment and mechanism may affect the relationship between client importance and audit quality. If the corporate governance mechanism of the listed companies is perfect, board of directors and audit committee and other agencies will support the auditor insisting on your opinion without sacrificing the audit independence when differences of opinion between auditors and the client. For that reason, this paper studies on the different corporate governance environment on the relationship between client importance and audit quality.The thesis is divided into six parts. Part one is an introduction. It mainly discusses the research background, research meaning, research contents and research method and then forms the framework of research about this thesis. Part two is a literature review of domestic and overseas representative views or related researches about the relations between client importance and audit quality as well as the influence of corporate governance on this relationship. It mainly elaborates the typical views and research results from domestic and overseas scholars about the relations between client importance and audit quality as well as the influence of corporate governance on this relationship, and then appraising these literatures. Part three is the summary of the influence of corporate governance on the relations between client importance and audit quality as well as theoretical basis, it is mainly about the overview of structure of client importance and audit quality, and then puts forward the theoretical basis of this thesis which includes economic entity, rent-seeking theory,independent audit reputation mechanism and System theory. Part four is theoretical analysis and hypothesis about the topic of this thesis, it is mainly the theoretical analysis of relationship between the influence of corporate governance on the relations between client importance and audit quality, and then puts forward the research hypothesis. Part five is empirical analysis. It mainly includes sample data collecting and sorting as well as empirical test. It is found that the more important the client importance, the worse the earning management, the lower the audit quality. It means the economic dependence between the client and the accounting firm hurts the audit quality from affecting the independence of auditors. When corporate governance is introduced, the relations between the client importance and audit quality is more negative but not remarkable in the statistics as same as the relation between the corporate governance and the audit quality. But we find the negative relation between the cross variable of client importance and corporate governance and the audit quality is remarkable in the statistics. It means without the strong support from the board and the independent audit committee, the accounting firm reach compromise for a long term material benefit. Part six is conclusions and put forward the suggestions according to the theoretical and empirical analysis. Limitations in this thesis and future direction of research about audit quality are also pointed out.