Wiil Media Supervision Improve Audit Quality?

Since the 21st century, media supervision is becoming a common social phenomenon, playing an increasingly important role in modern political and economic life. In Western countries, media has even been regarded as "the fourth party of power" independent of the legislative, judicial as well as administrative, and has become another important allocation mechanism of resources and wealth to assist government and market work better. A large number of facts show that the negative reports of listed companies have a vital impact on certified public accountants and accounting firms. With the financial fraud scandals of "Enron" "Yinguangxia" disclosed publicly by media, related listed companies and accounting firms suffered a major crisis, and even were close to bankruptcy. When the corporations are subject to negative press coverage, listed companies encounter higher operating risk, financial risk, litigation risk, and thus to increase the audit risk of accounting firms. In other words, the negative news of listed companies draws the public’s attention and leads to a hot discussion. Accounting firms are forced to be checked and proceed with caution to reduce the audit risk. However, academic research is limited to the impact of the media on the governance of listed companies, ignoring the role of the media in accounting firms and certified public accountants. So will the media supervision benefit to improve the audit quality? This is an issue worthy of further study.Usually, the level of audit quality depends on two aspects. One is the certified public accountants with respect to the independence of the customer, and the other is the certified public accountants’ occupation competence and the accounting firms investing in manpower, material resources and time. This article breaks the traditional limitations, and introduces the media supervision as an external factor to investigate the relationship of the media supervision and audit quality, which has important theoretical and practical significance. Foreign scholars have studied the media supervision affecting the independent auditing for more than 20 years, and have made a great achievement. The Securities Audit Market in our country is the emerging market. The integrity, accuracy and standardization of the information disclosure about the listed corporations’ audit are still to be improved. Therefore, the domestic scholars’ research on the media supervision in independent auditing field is relatively scarce. From what has been discussed above, with 2182 samples of listed companies in Chinese A stock market from 2012 to 2014, this paper probes the relationship between the media supervision and audit quality relative theory as well as carries out a detailed empirical analysis, and further examines whether media supervision influences audit quality through reputation mechanism, testing the conjecture by empirical studies of whether the effect of the media supervision on audit quality changes due to the accounting firm’s type (i.e. international "Big Four" accounting firms and non-"Big Four" firms).This paper is divided into six parts. Firstly, this article briefly introduces the selected topic background, significance, main content, research framework and innovation points. Secondly the literature is briefly reviewed and summarized from media supervision affecting independent auditing and audit quality alternative variable two aspects both on domestic and foreign research. Thirdly, this paper discussed how media supervision influences audit quality from "reputation mechanism", "auditing demand insurance mechanism" and "media biased mechanism" three academic angles, and puts forward the point of view that media supervision plays an effect on audit quality through reputation mechanism. Fourthly, based on the above theoretical analysis, this thesis brings forward the hypothesis, taking the absolute value of discretionary accruals as audit quality substitution variables and natural logarithm of the number of annual media reports as media supervision substitution variables to construct model to explore the relationship between media supervision and audit quality. Fifthly by descriptive statistics, correlation analysis and multiple regression analysis,2182 samples data from 2012 to 2014 in A stock market in Chinese listed companies were statistically analyzed. The results show that:the negative media coverage is significantly positively correlated with audit quality. This is to say, the media supervision can effectively improve the audit quality of accounting firms. Media supervision influences audit quality through reputation mechanism. That the effect of the media supervision on audit quality changes due to the accounting firm’s type (i.e. international "Big Four accounting firms or non-" Big Four "firms), clearly verifies the hypothesis. Finally, according to the results of empirical research, the article proposes constructive suggestions from strengthening media supervision and improving the audit quality of accounting firms two angles in order to help the media improve audit quality.The research of this paper has momentous theoretical and practical significance for a profound understanding of the media supervision improving the audit quality. Firstly, the media supervision has been proved to have the universal applicability. Namely, media supervision not only strengthens the corporate governance but also improves the audit quality of accounting firms. Secondly, the research perspective is innovative. That the thesis introducing media supervision as the third party perspective, provides a new way to improve the quality of audit and breaks up the traditional limitation of the study. Thirdly, in this paper, the conclusion tells us that auditing profession will have a bright future by strengthening the supervision of the media function to improve the quality of certified public accountants audit and enhance customer satisfaction.