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The impact of improved auditor independence on audit market concentration in China
Mark L DeFond, T.J Wong, Shuhua Li
Journal of Accounting and Economics Volume 28, Issue 3, December 1999, Pages 269–305
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.
Keywords
Audit markets; Auditing standards; Regulation; Modified audit opinions; Audit quality

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

 

Mark L DeFond, T.J Wong, Shuhua Li

 Journal of Accounting and Economics Volume 28, Issue 3, December 1999, Pages 269–305

 

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.

 

Keywords

 

 Audit markets; Auditing standards; Regulation; Modified audit opinions; Audit quality

 

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