Client Conservatism And Auditor-Client Contracting

Since the twenty-first Century,China has constantly appeared the financial fraud events in many listed companies,resulting in the accounting firms and the listed companies are punished by the Financial Industry Regulatory Authority.It not only make the accounting firms and the listed companies suffer great loss,but also has a greater negative impact on the economy of the whole society,which is an alarm to the accounting firms and the listed companies.Based on one of the characteristics of the audit market in China,which is called "buyer's market",the relationships between the auditor and the client are mainly maintained by the auditor.Auditors will consider the customer's conservatism as an important role to promote the relationships between customers and auditors.This provides a reference for the regulatory authorities to implement the scope and intensity of market regulation and guidelines for the formulation of standards.They will pay more attention to the conservatism.There are many literatures have discussed the influence of conservatism on the debt contract,the stock market,the investment efficiency(Ahmed et.al 2002;Suijs et.al 2008;Franci et.al2010).However,the amount of literatures that study the relationship between customer conservatism and audit contract while they regard the conservatism as the characteristics of customers is relatively small.This thesis combined the method of empirical analysis,path analysis with normative analysis method,selected from 2013 to 2015 all A shares of listed companies as the research sample,using Defond(2002),Shu(2000),Ashbaugh(2003)model,mainly studies the client conservatism affects auditor-client contractual relationship and the customer's conservatism how to affect the contractual relationship between the auditor and the customer through the engagement risk(regulatory risk and restatement risk).The empirical results of this thesis show that customer conservatism plays an important role in contributing to the contractual relationship between auditors and clients.That is to say,the customer's conservatism will directly affect the contractual relationship between the auditor and the customer.When client conservatism can reduce risks,auditors will charge customers lower audit fees,issue less non-standard audit opinions,in order to better promote and maintain the audit-client contracting relationship.Namely client conservatism can reduce audit fees and non-standard audit opinions by reducing the engagement risks.The results ofthe path analysis show that the customer conservatism will directly affect the contractual relationship between the auditor and the customer,that is to say,the auditor will charge conservative customers lower audit fees and release less non-standard audit opinions.The regulatory risks and restatement risks as an indirect path,the test results show that the client conservatism will indirectly influence the auditor-client contractual relationship by reducing regulatory risks and restatement risks,namely reduce audit fees and issue less non-standard audit opinions.