Government Regulation And Audit Quality

A high-quality audit has an obvious effect on ensuring information disclosure quality of listedcompanies and improving the allocation efficiency of the capital market. However， a series offinancial scandals happened in domestic and abroad， the phenomenon of low-quality auditingreflect the "failure" of the audit market. As a way to solve the market failure， governmentregulation is becoming an issue both in theory and in practice in auditing industry to improve theaudit quality. The focus of this paper is government regulation and audit quality improvement.This paper analyzes the current situation of accounting firms regulation in China，theoretically analyzes the reasons for government regulation and the function mechanism ofgovernment regulation to improve the audit quality. On basis of the theoretical analysis， thispaper conducts an empirical test on the listed companies from2001to2010which audited bypunishment audit firms， examines the effects of government regulation to improve audit qualityfrom two levels of audit firms and certified public accountant.The results show the effectiveness of the government regulation in auditing industry. This maybe due to the constraints of regulatory power and force， or under the excessive completioncircumstance， in order to survive， audits have no choice but to ignore regulatory pressure. Inaddition， the unique institutional environment of China’s securities market leads to the lack ofdemand for high quality audit， it makes the reputation mechanism difficult to have function.This conclusion also shows the need to improve the working environment for certified publicaccountant， and it is time to establish a sound regulation system.