The impact of improved auditor independence on audit market concentration in China

The impact of improved auditor independence on audit market concentration in China In an attempt to increase credibility in its capital markets, China recently adopted new auditing standards. Consistent with increased auditor independence, we find that the frequency of modified opinions increases nine-fold subsequent to the adoption of the new standards. However, the increase in modified reports is followed by a decline in audit market share among large auditors – those with the greatest propensity to issue modified reports. We conjecture that this `flight from audit quality’ results from lack of incentives to demand independent auditors. Our findings suggest that government regulation alone is insufficient to create financial markets that foster auditor independence. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

The impact of improved auditor independence on audit market concentration in China

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Publisher
Elsevier
Copyright
Copyright © 2000 Elsevier Science B.V.
ISSN
0165-4101
DOI
10.1016/S0165-4101(00)00005-7
Publisher site
See Article on Publisher Site

Abstract

In an attempt to increase credibility in its capital markets, China recently adopted new auditing standards. Consistent with increased auditor independence, we find that the frequency of modified opinions increases nine-fold subsequent to the adoption of the new standards. However, the increase in modified reports is followed by a decline in audit market share among large auditors – those with the greatest propensity to issue modified reports. We conjecture that this `flight from audit quality’ results from lack of incentives to demand independent auditors. Our findings suggest that government regulation alone is insufficient to create financial markets that foster auditor independence.

Journal

Journal of Accounting and EconomicsElsevier

Published: Dec 1, 1999

References

  • The effect of audit quality on earnings management
    Becker, C; DeFond, M; Jiambalvo, J; Subramanyam, K.R
  • Auditor changes and discretionary accruals
    DeFond, M; Subramanyam, K.R

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