Does Non-punitive Regulation Affect Audit Quality?

The Shanghai Stock Exchange and Shenzhen Stock Exchange publicly disclosure the inquiry letter of the listed company for the first time in 2014.Since then,the number of inquiry letter of the annual report of listed companies has increased sharply.These letters often require auditors to reply,which involves audit issues.In addition,as the national and social public's expectation of audit work has become more increased in recent years,audit quality has become a research hot topic.While the annual report inquiry letter is a non-punitive supervision,its impact on audit quality has not attracted the attention of scholars.Whether the auditors will pay more attention to their work quality and be more cautious because of annual report inquiry letter,thus affecting the audit quality?The impact is not clear.Based on a sample of the listed companies of Shanghai and Shenzhen stock markets from 2015 to 2017,this article attempts to deeply analyze the influence of the annual report inquiry letter on audit quality by DID model.The empirical results show that:(1)Because the audit quality is affected by the auditor's personal characteristics,personal reputation and audit ris,the "inquired" auditor(referring to the auditor employed by the listed company that received the annual report inquiry letter)will improve audit quality in the following years since receiving the inquiry letter.Improving the audit quality by annual report inquiry letter has a self-learning effect on the individual level of the auditor;(2)The audit team members are the most direct observers of the auditor's behavior,so the auditor's team members of the "inquired" auditor will improve audit quality in the following years since receiving the inquiry letter.Improving the audit quality by annual report inquiry letter has a cross-learning effect on the team level of the auditor;(3)the inquiry letters with more questions,or with requiring the accounting firm to provide verifi cation opinions,or with earnings management and information disclosure issues have a significant positive impact on the individual audit quality.The research results of this paper show that the Stock Exchange inquiry system is effective for the supervision of the audit market.It also suggests that the regulator should strengthen the regulation and punishment of the audit market,regulate the information disclosure system of listed companies,and create a favorable information disclosure environment.