Audit Market Competition, Competitiveness Of Accounting Firms And Audit Quality

Since 2000, domestic audit market has undergone three waves of mergers. The concentration of audit market has been greatly improved, but intense competition still exists. The domestic audit market presents the characteristics of being regulated, locality, dispersity and so on. This paper attempts to explore the relationship between the audit market competition structure on meso and micro levels and the audit quality, so as to provide reference for the regulation of the audit market and the development of the regulatory policy.Using relevant data of Shanghai and Shenzhen A-share listed companies in 2007-2009, the paper studies the influence of audit market competition structure on audit quality. In the paper, the competition of the audit market structure involves meso level and micro level. The competition on the meso level is regional competition and industry competition in the audit market. The competition on the micro level is audit firm competitiveness in the regional market and industry market. The paper conducts the analysis of China’s audit market step by step, from the whole to the part. Firstly, the paper analyses the national audit market to grasp the overall situation. Secondly, the paper analyses the performance of non-big-four accounting firms. Thirdly, divide the whole sample into market-economy-developed-area sample and market-economy-developing-area sample. Progressive analysis of the whole sample has contributed to a better understanding of the reality of China’s audit market.Through the analysis of this paper, it is found that the competitive structure of the domestic audit market has different characteristics in different regions, and there are differences in audit quality in different competitive structure. The results are as follows:1. Auditing market competition condition is different in in various regions of our country. On average, audit market competition tends to be more intense in market economy developed regions, less intense in market economy developing regions. In market-economy-developed regions, regional audit market is highly competitive, which damages annual audit service quality. On the other hand, in market-economy-less-developed area, the lack of competition in the regional market environment also damages audit quality. Therefore, the level of competition in the regional audit market should not be too high or too low. It’s supposed to reach a moderate level, in order to ensure the quality of annual audit.2. Auditing market competition condition is different in in various industries of our country. On average, the more prosperous the industry is, the more intense the industry audit market competition is. In addition, more firms in market-economy-less-developed area are involved in intense audit market based on industry than in developed areas. In market-economy-less-developed area, industry audit market is highly competitive, which damages annual audit service quality. On the other hand, in market -economy-developed regions, the lack of competition in the industry market environment also damages audit quality. Therefore, the level of competition in the industry audit market should not be too high or too low. It’s supposed to reach a moderate level, in order to ensure the quality of annual audit.3. There are less auditing offices with regional competitive advantage in market-economy-more-developed areas than in market-economy-less-developed regions. No matter in the whole audit market samples, non-big-four firms samples or separated samples based on degree of market economic development, the regional competitive advantage has no significant correlation to audit quality, which means the effect of the regional competitive advantage on audit quality is uncertain.4. There are more industry experts in market-economy-more-developed areas than in market-economy-less-developed regions. Audit quality is better in market-economy-more-developed areas than in market-economy-less-developed regions. In the whole audit market samples and non-big-four firms samples, the correlation between the firm’s competitive advantage in the industry and audit quality is significantly positive, which means the competitive advantage in the industry can effectively guarantee the high quality of annual audit. However, in separated samples based on degree of market economic development, the correlation between the auditing firm’s competitive advantage in the industry and its audit quality is not significant.Finally, this paper puts forward that if we want to improve the market competitiveness of local accounting firms and the quality of annual audit, we should take different measures according to local conditions and adopt different policies in areas of different economic development. In addition, the policy should be developed to foster healthy capital market environment and protect the interests of investors. Lastly, measures should be taken to improve the demand of capital market for high quality audit and encourage accouting firms to cultivate competitive advantage.