The Research On Senior Management's Affiliation With CPA Firms And Audit Quality

Audit quality is not only critical for the existence and development of audit industry, but also essential for alleviation of information imbalance and improvement of market allocation efficiency. With revelations of accounting fraud scandals in recent years, senior manager's affiliation with CPA firms(AFF) has caused serious concern. With the implementation of "China Code of E thics for Certified Public Accountants" in 2010, does AFF lower the audit quality? Is there any difference between the effects of different types of AFF? Furthermore, how to improve the audit quality with AFF? All the issues are discussed and analyzed in t his paper for the improvement of audit quality and relevant management policy in China.In this paper, a comprehensive literature review about relationship between AFF and audit quality is introduced. Then different AFFs are categorized based on principal-agent theory. Further analysis is conducted on the impact on audit quality under different types of AFF and the improvement method for audit quality under AFF is discussed from the perspective of corporate governance. Second, 3464 a-share listed companies, from 2010 to 2013, were sampled and analyzed as the factual support for the relation of different types of AFF and audit quality.Then we explored the improvement of audit quality with AFF. The conclusion was drawn on four different aspects: 1. AFF lowers the audit quality; 2. comparing to the AFF of ordinary staff, the AFF of former officer in CPA firms has more negative impacts on audit quality; 3. comparing to the AFF of supervision manager, the AFF of decision-making manager has more negative impacts on audit quality; 4. Higher corporate governance standard leads to higher audit quality with AFF. Finally, based on theoretical analysis and empirical evidences, several advices are proposed as following: adjusting the “cooling-off period” policy accordingly; strengthen the supervisory role of independent directors and board of supervisors; improving on the ownership structure, board characteristics and audit committee regulations; completing information disclosure system related to AFF.