The Effect Of The Auditor Reputation On The Audit Quality

In the audit market, the better the auditor’s reputation stands for higher quality of auditservice and more recognition and praise for accounting firms. However, the capital market hasdoubted the audit quality of accounting firms recent years because the accounting firms whichwere considered has higher reputation have involved in many cases of audit failures.Therefore, this article discusses the effect of auditor reputation on audit quality on China’sspecial background.First, this article reviews literature referring the audit quality, auditor reputation and theeffect of audit reputation on the audit quality. Plus, problems to be solved are proposed on thebasis of comment of literature review presented in this article. Second, this article hastheoretically analyzed the impact of auditor reputation on audit quality and made researchassumptions based on it. Finally, this article has testified the effect of auditor reputation onaudit quality empirically and found that the auditor reputation has a significant positive effecton the audit quality.Specifically, the article has selected the sample data of all A-share listed companies ofShanghai and Shenzhen from2010to2012. According to the website of China Association ofCertified Public Accountants, the top100accounting firms concerns the auditor reputationbased on whether the auditors are from the "top ten". In addition, use the discretionaryaccruals which were calculated by the modified Jones model and the accounting conservatismwhich was calculated by Basu reverse regression model. Furthermore, the article has testifiedthe effect of auditor reputation on audit quality through descriptive and regression. Theresearch results show that "Top Ten" accounting firms’ tolerance for earnings management issignificantly lower than "Non Top Ten" accounting firms. In addition, companies wereaudited by "Top Ten" accounting firms are more conservative in accounting than companiesaudited by "Non Top Ten". It indicates that auditor reputation has a significant positive effecton the audit quality.The audit quality of the "Top Ten" accounting firms is significantlyhigher than the "non-Ten" accounting firms.Conclusions of this research are to provide empirical evidence for improving auditquality by auditor reputation, to provide a guide for improving audit quality of accountingfirms and enhancing regulations by relevant departments, and to provide a basis and somesupport for the establishment and maintenance of auditor reputation.