Abstract
This paper attempts through a review of the associated literature to describe and critically evaluate the audit market in China by exploring the main factors that affect auditor independence. The study identifies that non-audit service and low-balling/price-cutting are not parameters affecting auditor independence. Regulation can effectively help to maintain audit independence, but the enforcement of those regulations is very poor. Audit firm reputation is established and maintained by fulfilling the obligations of guanxi (personal relationship), rather than by reporting modified opinions fairly and trustfully. Due to government protection, competition in the Chinese audit market is limited and the possibility that Chinese audit firms lower their fees to retain clients is much diminished. Thus, competition and audit firm size appear to be positive aspects for audit independence. However, other national cultural and political-regulatory factors seem to have a moderating effect.
Highlights
The above elements have been examined widely in developed countries
We argue here that non-audit service is not a factor that could affect auditor independence since Chinese Certified Public Accounting (CPA) firms are still at the stage of changing their focus from taxation audit services to financial statement audit
In light of the global economy, China has performed a series of financial reforms
Summary
In light of the global economy, China has performed a series of financial reforms. The latter are different from these undertaken in Eastern Europe that mainly copied and applied western-style market systems. After the economy was nationalized in 1962, the audit function performed by public accountants was annulled (Gensler and Yang 1996). A group of badly trained professionals performed the detailed recording of transactions These professionals were the first accountants in the country with no related education and/or appropriate training (Graham 1996). The auditing system in China has, in very few occasions, served the purposes of financial position reporting. The system was employed instead to collect data that were used to monitor compliance with State aims and for tax purposes (Lau and Yang 1990)
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
