Research On External Constraints Risk And Independent Audit Quality

There is no sufficient effective demand for high-quality audit service in our audit market because of the information asymmetry and the special system background of our capital market, which leads to the continuous falling of overall audit quality in the audit industry. And audit scandals occur frequently in the recent years. Therefore, it’s very necessary for us to promote audit quality with the external constraint force, leading the market to a healthy way of development. External constraint force mainly include litigation risk and government regulation. This article studies the effectiveness of the two force and focuses on their difference in improving audit quality.First, Analyze theories that’re related with external risk constraints and audit quality and then get the conclusion that there’re necessity and possibility to improve the quality of auditing. And then summarize the present situation of litigation risk and government regulation according to China’s audit industry current status to get our research hypothesis. This empirical research chooses the degree of earnings management and accounting conservatism as substitution variables of audit quality,select auditors that’re indicted and administratively punished between 2007 and 2013 as the research sample of high degree of litigation risk and government regulation, select auditors neither indicted nor punished during the same period as the reference sample, in order to find weather the audit quality was significantly improved after restrained by litigation risk and government regulation.Test results show that, the external constraint risk that the auditor faced mainly comes from the government. Actions brought by non-governmental body didn’t play its role. Further studies have found that even different regulatory agencies also have different regulatory results. The CSRC achieve the most significant results in improving audit quality and the ministry of finance and the note of the regulatory effect of worse than expected. At the same time more than "regulation" improved the degree of auditor risk perception regulated, so that the auditor’s professional process become more cautious, and improve the audit quality significantly. Finally, based on the above research conclusion, strengthen litigation risk constraint is proposed to improve the efficiency of the government regulation policy recommendations.