The Empirical Research Of The Influence Of CPA Legal Liability On Audit Quality

CPA legal liability is the problem that all countries in the world to focus on, in the past century. In other countries, since the late 20th century, lawsuit took place one after another in CPA industry, the audit profession faced an unprecedented crisis in the proceedings, and legal liability risk continues to rise. China's CPA industry, restoration and reconstruction since 1981, has been rapidly developing, has made tremendous contributions for maintaining the order of market economy in China. In line with the CPA industry management, ensure it play its "economic police" functions better, norms about CPA legal liability have been publicized in succession. Nevertheless, the CPA legal dissension is still arising, CPA has been frequently involved in litigation crisis. Facing the huge occupational risk, it is a serious challenge for the young Chinese CPA industry.There are different views on CPA legal liability in China. Some people think that legal action against the CPA audit failures is less stressful. In recent years, the reason why CPA faced a flood of lawsuits, precisely because the law is not stressful enough for their standards, CPA non-compliance costs is small. And therefore should consummate relevant laws, increase penalties, increase CPA non-compliance cost, so that CPA is cautious to audit and enhance audit quality.But somebody else think that, due to the particularity of Chinese CPA industry and the prevalence of deep-pocket theory, it's not fair to attribute all the responsibilities of audit failures to the CPA, and blindly increase the legal liability does not necessarily improve the quality of auditing. Faced with these different perspectives, it's very significative to recognize the relationship between audit quality and CPA legal liability and consummate CPA legal liability system, in order to enhance audit quality, protect the legitimate rights and interests of CPA, promote the healthy development of China's CPA industry, and establish the normal order of socialist market economy. This paper first review the existed literature, summarized the research progeny in present stage at home and abroad to find the starting point of this study.Next, analyze the relationship between the legal liability and CPA audit quality in depth. In the audit market with effective contract arrangements, if can't satisfy customers'demand for high-quality audit, CPA will lose audit market share, and been eliminated. So, CPA's behavior can be restricted depending on their professional ethics and the corresponding market mechanisms, without the external factors.But studies have shown that audit business is not a spontaneous market demand in China, China's audit market doesn't need, even exclude the high audit quality in general. The original "high-quality, high-yield" relationship will not exist any longer, and audit quality isn't the main variable of the cost-benefit function of CPA any longer. As a limited rational-economic man, CPA will follow the principle maximizing there own interests, and will certainly provide low-quality audit services in order to meet the needs of the audited clients.In the market that does not require the high audit quality, the internal market mechanism determined by market supply and demand is ineffective, then need to induct the external factors to change the current cost-benefit model faced by the CPA. The introduction of CPA legal liability is one of the best choices. Increasing CPA legal liability, the cost of choosing low audit quality and non-compliance will be higher, thus making CPA get out of low audit quality strategy and chose a high audit quality strategy.However, the legal liability is not the bigger the better. Increasing the risk of CPA legal liability does not necessarily improve the audit quality. The impact of CPA legal liability on audit quality has two sides. There should be an appropriate degree of CPA legal liability. But it's absolutely necessary to further increase CPA legal liability when CPA legal liability is lower in China, in order to consummate the CPA legal liability system.Then, this paper emphasizes the empirical tests to study the relationship between CPA legal liability and audit quality, to find whether the changing context related to CPA legal liability had a significant impact on audit quality. Empirical result shows that, increasing the CPA legal liability improved the audit quality significantly, The results indicate that CPA legal liability is still in the relatively low level, and also need to consider whether or not to further increase CPA legal liability;the results provided empirical data support for the implementation of "Act Interpreting No.12", and to provide a academic basis for further legal norms.Finally, this paper provide the relevant policy recommendations on the institutional arrangements of CPA legal liability, in order to optimize CPA legal liability institutional arrangements, improve audit quality, protect the legitimate rights and interests of investors, and ultimately improve the efficiency of the allocation of resources in capital market.The main innovation points of this paper are as follow:(1) Analyze the relationship between CPA legal liability and audit quality systematically in depth;(2) Provided the latest empirical evidence for the relationship between CPA legal liability and audit quality;(3) Provided empirical data support for the implementation of "Act Interpreting No.12", and to provide a academic basis for further legal norms.