Research On The Effectiveness Of Warning Letter Supervision In CPA Industry

Accounting firms,as an important assurance institution in the capital market,the accuracy of their audit reports is of great significance in ensuring the quality of accounting information disclosed by enterprises,protecting the rights and interests of investors,and safeguarding the healthy development of the capital market.2021 The State Council issued a document on further regulating the order of financial auditing,which pointed out that at this stage,there are still problems in the performance of the duties of accounting firms and the supervision of the industry needs to be strengthen.At present,the supervision of CPA industry in China is mainly administrative supervision,supplemented by industry self-regulation.In recent years,administrative supervision means are gradually enriched,in addition to administrative punitive supervision,in 2002,CSRC proposed for the first time that non-administrative punitive supervision can be issued for the practice of firms that have failed to perform diligently but have not yet constituted a crime.According to statistics,from2017-2021,the warning letter supervision,which is used more frequently in non-administrative punitive supervision,was issued 456 times by the CSRC and dispatched institutions.Under such high-frequency regulation,many firms still repeatedly impose penalties,which makes people wonder whether various regulatory measures really achieve the expected effect.The existing research on the regulation of CPA industry mainly focuses on administrative penalties,and there is less research on non-administrative penalties such as warning letters,which have weaker penalties.The study of the regulatory effect of warning letters has certain significance for enriching the research on the regulation of CPA industry and preventing audit failures.Therefore,this paper starts from the overall regulation of the CPA industry by warning letters,compiles the implementation of warning letter regulatory measures,and evaluates the overall regulatory effect.Meanwhile,based on the results of the analysis of the industry regulation,Baker Tilly International CPA Firm,which has been subject to the highest frequency of warning letter regulation among the CPA firms that have not received administrative penalties from 2017 to the present,is selected as the object of analysis.In terms of specific supervision effect,it combines the rectification effect of Baker Tilly International on the reasons of being warned,taking audit quality and market share as the main measurement basis and the professional development of the warned CPAs as the reference basis.In the evaluation of audit quality,the level of audited unit’s surplus management is the main focus,and audit opinion and audit fee are supplementary.The earliest time among the audit projects involved in Baker Tilly International CPA Firm under the supervision of warning letter is the audit of financial statements in 2015.Therefore,in terms of time interval,2015 to 2021 is selected as the observation period.Combining the overall and single firm situation of industry warning letter regulation,the regulatory effect of warning letter regulation on accounting firms is comprehensively analyzed.Based on theoretical analysis and case studies,this paper finds that the frequency of the CSRC exercising warning letter regulation on accounting firms has increased significantly in recent years and has achieved certain regulatory effects in general.Although there are still problems such as a strong lag in punishment,it still reflects that the CSRC has achieved certain results in high-intensity and diversified supervision.On this basis,from the regulatory perspective of the CSRC,three suggestions are made to optimise the regulation of warning letters: upgrading the regulatory penalty mechanism for warning letters,optimising the public disclosure system and improving regulatory efficiency.