A Research On The Evolution And Economic Result Of Dual System Of Auditing

On September 17th,1992, Ministry of Finance of China and the stock exchange of Hong Kong distributed the regulation that the A+H firms should prepare two sets of financial statements respectively according to the accounting standard of Hongkong(or international) and mainland of China, at the same time, they should hire two different auditing firm from inland and outland to fulfill their auditing duty, namely implementing the dual system of auditing. On December 10th,2010, Ministry of Finance, Securities Regulatory Commission and the stock exchange of Hong Kong distributed the reports that canceled the dual system of auditing policy in Hongkong and mainland of China simultaneously.The dual system of auditing is designed to cope with the difference of accounting standard of China and international accounting standards, additionally the low professional level of inland audit firms. From the very beginning, the system has absorbed wide attention of domestic scholars. Existing researches argue that, the dual system of auditing as the extension of agency theory and traditional auditing theory haven’t efficiently decreased the agency cost and improve the auditing quality. Most of the existing researches propose two reasons to the question why obvious cost increasing haven’t brought significant positive effects on auditing quality:(1) the practical dual system has a long distance from the ideal one;(2)the two auditors under the different regulations of dual system of auditing face almost the same auditing circumstance, which embodied in the scarce of demand of the high auditing-quality, imperfect legal system and low civil liability to pay compensation.Most of the exiting researches on the dual system of auditing focus on the valuation of its implement effect, but the dual system of auditing in and out of our country has been abolished presently. We haven’t find any research on the adverse effect of the cancel of the dual system of auditing in and out of our country. So my paper focuses on two questions:one is whether the abolishment of the dual system of auditing have negative effect on the auditing quality? Another is if the quality of auditing after the abolishment haven’t declined but increases, what factors cause this phenomenon.This article uses the samples of A+H firms in the term of 1998-2012.I match the samples and then use the Difference-in-Difference Model to investigate in the effect of the abolishment of the dual system of auditing on auditing quality. In the second step, I use the adjusted-Jones model to measure the auditing quality, then I use the multiple regression model to analysis what factors have effect on the change of auditing quality after the abolishment of the dual system of auditing. My research finds that after the abolishment of the dual system of auditing, the aggregate auditing quality of A+H firms have significantly improved. Besides this, this paper finds that the implement of the new accounting standard, the better auditing circumstance of H stock market and the increasing of market share of the domestic auditing firms all have significant positive effect on the improvement of auditing quality on listed companies.This article provides empirical evidence for the research on the abolishment of the dual system of auditing.