Regulation Of Securities Qualification Of Accounting Firms And Audit Behavior Decision

In order to implement of the reform requirements of State Council on “Deregulation Supervision and Service”,he Securities Law of the People’s Republic of China(the New Securities Law)was revised and passed on December 28,2019.The law relaxed the qualification regulation requirements of accounting firms engaged in securities business of listed company from approval-based system.After the implementation of record filing system,a large number of audit firms without securities qualification flood into the audit market,which will inevitably lead to the intensification of competition.According to the 2019 Annual Report of the Ministry of Finance on the Construction of the rule of Law Government,as of December 31,2019,the qualification approval of accounting firms engaged in Securities and futures business was cancelled in accordance with the provisions of the new securities law.Some accounting firms that originally did not have securities qualification began to undertake the audit of the 2019 annual report of listed companies.At the same time,the new securities law also changed the issuance of stocks from an examination system to a registration system.Securities issuance examination agencies under the system of registered only in the form of the registration file for review,it does not carry on the value of the company substantial judgment.The investors through company full disclosure of relevant information to make investment decisions and to take risks.It highlights the importance of auditing information disclosure system,this will increase the audit risk and responsibility.Then,how will auditors make audit behavior decisions,such as audit fees and audit quality,in the face of fierce market competition after the deregulation of securities qualification regulation? As one of the demanders of audit service,can investors perceive the change of audit behavior after the deregulation of securities qualification of firms,so as to make corresponding market reaction? Based on this,this article will theoretically analyze and empirically test how the deregulation of securities qualification of firms affects decisions-making of audit behavior and the market recation of investors to the audit behavior under the securities qualification of firms,taking the data of Chinese A-share listed companies from 2017 to 2020 as the research sample.On this basis,it puts forward the supervision countermeasures of audit industry,which has important theoretical value and practical significance for the smooth implementation and effective operation of registration system and the efficiency improvement of resource allocation in capital market.This paper studies the influence of securities qualification deregulation on audit behaviors decision and investors’ market reaction by using audit attribute theory,asymmetric information theory,principal-agent theory,reputation theory,“deep pocket” theory and porter’s five forces model theory,combining normative research method and empirical research method.First of all,by certified public accountants securities qualification deregulation as the breakthrough point,to industry self-regulation and government regulation resulting in audit product by trust and experience product attributes related research as the main line,through combing the domestic and foreign related literature,concluded that if the weakening government regulatory power,completely spontaneous adjustment to the market,the audit experience market will gradually transformed into a pure trust market,market constraint mechanisms such as reputation mechanism and legal mechanism will become invalid,and audit opportunism is very easy to occur.Secondly,taking the opportunity of relaxing the regulation on securities qualification of audit firms,the relevant theories such as audit product attribute theory,information asymmetry theory,principal-agent theory,reputation theory,“deep pocket” theory and Porter’s Five Forces model theory are utilized.This paper expounds the theoretical basis and logical framework of the influence of the deregulation of securities qualification on audit behavior decision and the market reaction of investors to audit behavior under the deregulation,and then uses the Differences-in-Differences method and the event study method to empirically test.Finally,according to the auditor’s audit behavior decision and investor’s market reaction,put forward the policy suggestion to audit industry supervision.The conclusions of this paper are as follows:Firstly,the relaxation of securities qualification regulation affects audit fees.The results show that:(1)the deregulation of accounting firms’ securities qualification significantly reduces audit fees;(2)Compared with areas with good legal environment,the negative correlation between the deregulation of accounting firms’ securities qualification and audit fees is more significant in areas with poor legal environment;Compared with state-owned enterprises,the negative correlation between securities qualification deregulation and audit fees of accounting firms is more significant in non-state-owned enterprises.Compared with firms with low agency conflict,the negative correlation between securities qualification deregulation and audit fees is more significant in firms with high agency conflict.Compared with enterprises with low audit risk,the negative correlation between securities qualification deregulation of accounting firms and audit fees is more significant in enterprises with high audit risk.(3)Further analyze the mechanism of accounting firms’ securities qualification regulation affecting audit fees,and finds that the deregulation of securities qualification regulation is due to the decrease of audit input,which leads to the decrease of audit fees.Secondly,the relaxation of securities qualification regulation affects audit quality.The results show that:(1)the deregulation of accounting firms’ securities qualification significantly reduces audit quality;(2)Compared with areas with poor legal environment,areas with good legal environment will weaken the negative correlation between the deregulation of accounting firms’ securities qualification and audit quality.Compared with non-state-owned enterprises,state-owned enterprises will weaken the negative correlation between the deregulation of accounting firms’ securities qualification and audit quality.Compared with firms with high agency conflict,firms with low agency conflict will weaken the negative correlation between securities qualification deregulation and audit quality.Compared with enterprises with high audit risk,enterprises with low audit risk will weaken the negative correlation between accounting firms’ securities qualification deregulation and audit quality.(3)Further analyzes the mechanism of the impact of the securities qualification deregulation on audit quality,and finds that after the securities qualification deregulation of accounting firms,the audit quality is reduced because the auditors reduce the audit fees and cannot guarantee the audit input.Thirdly,the audit behavior of accounting firms under the deregulation qualification affects the the market reaction of investors.The results show that:(1)in the time window of audit report disclosure day,investors have a significant negative market reaction to audit reports issued by accounting firms that are greatly affected by securities qualification deregulation policies.(2)Compared with areas with good legal environment,investors in areas with poor legal environment have more significant negative market reaction to audit behavior under the deregulation of securities qualification of accounting firms.Compared with state-owned enterprises,investors in non-state-owned enterprises have more significant negative market reaction to audit behavior under the deregulation of accounting firms’ securities qualification.Compared with the low agency conflict group,investors in the high agency conflict group have more significant negative market reaction to audit behavior under the deregulation of accounting firms’ securities qualification.Compared with the low audit risk group,investors in the high audit risk group had more significant negative market reaction to audit behavior under the deregulation of accounting firms’ securities qualification.(3)It further analyzes the mechanism of audit behavior affecting investors’ market reaction under the deregulation of securities qualification of firms.Empirical test shows that after the deregulation of securities qualification of firms,investors perceive the change of audit behavior,that is,the reduction of audit fees and audit quality,and then make a significant negative market reaction.The study showed that when the firm’s securities qualification were deregulated,the fierce market competition weakens the customer demand for high quality audit at the same time,reduces the auditors to provide high quality supply of incentive,auditors tend to through the way of low-cost assures to obtain and retain customers,the loss of audit independence,which reduces the audit quality.For investors,the change of audit behavior after the loosening of securities qualification regulaed can be quickly perceived and reflected in the stock price.Therefore,it is suggested that the government and relevant departments should reflect on the regulation mode and supervision policies of securities firms’ securities qualification,appropriately raise the threshold of market access for engaging in securities services,strengthen the regulate of audit fees,improve the relevant institutional provisions of auditors’ legal liability,and further strengthen the punishment of securities business violations.It is suggested that the accounting firms should further strengthen the construction of business quality management system,increase the awareness of risk prevention,establishing a quality-first corporate culture and quality-oriented incentive mechanism.At the same time,it also calls on enterprises to strengthen internal governance,ensure the demand for high-quality audit and carefully select firms,especially the small firms that have just entered the audit market after deregulation.The main research contributions of this paper are as follows:(1)Based on deregulation of qualification of securities firm background in our country,probe into its influence on audit behavior decision,not only enriched the economic consequences of research literature on firm securities qualification control,the control problem for future audit industry provides a unique research scene,but also enrich the research on audit behavior decision-making factors.(2)From the perspective of audit product attributes,this paper probes into the regulation of securities qualification of audit firms,which provides a new idea for the research on whether audit industry regulation should adhere to government regulation or market regulation.(3)From the perspective of investor reaction,this paper studies the market reaction of investors to audit behavior under the deregulation of securities qualification control,and verifies the audit trust degree of investors to the change of audit responsibility after the deregulation,which is helpful for the market to understand the implementation effect of the policy and has guiding significance to the behavior of market subjects.