Study On The Effect Of Auditor “Revolving Door” On Audit Quality

With the gradual growth of Chinese market economy, as well as accounting firms, a phenomenon that auditors switched to audit clients to work, particularlly to work as the director or senior officer is increasingly widespread. This phenomenon is known as auditor “revolving door”, and sparked widespread concern of many scholars.However, whether the auditor “revolving door” will affect audit quality, the existed research has not yet come to a unified conclusion.In order to understand the relationship between the phenomenon of auditor“revolving door” and audit quality more clearly, this paper use the methods of theoretical analysis and empirical research. Based on the data of A-share listed companies, the paper examine this issue by taking absolute value of manipulated accrual profit as the dependent variable---audit quality, revolving or not as the independent variable, and adding some appropriate control variables. It was found that the occurrence of auditors “revolving door” would absolutely increase maneuverability profits, which explained this phenomenon had a negative impact on audit quality. For analyzing deeply the effect of the “revolving” on the audit quality after serving as different executives, the article subdivided executives into“decision-making executives” and “oversight executives”, which is a major innovation of this paper. The result was that serving as the “decision-making executives” increased significantly accruals, harming audit quality, but there was no clear evidence that serving as “oversight executives” reduced or improved audit quality. Concerning on the professional skills, which the “revolving-auditors” had,may have an impact on the conclusions of the study. So the robustness test was done by confining the study sample within the companies whose executives had audit working experience to examine the above-mentioned result. In the end, the conclusion was not changed. In other words, the phenomenon of auditor “revolving door”does reduce audit quality.In view of the above conclusion by theoretically analyzing and empirically examining, the paper further offered some suggestions that strengthening the system of accounting firm quality control and review, improving the level of corporate governance, having more regulation for the independence of the auditor, selecting revolving-role appropriately etc to lower the negative effect of auditor “revolving door” on audit quality.