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Who Should Have the Right of Selection of Auditors?

Author: LiuJuan
Tutor: CaiChun
School: Southwestern University of Finance and Economics
Course: Financial Management
Keywords: Auditor Independence Game Theory Theory of motivation The right to audit selection
CLC: F239.4
Type: Master's thesis
Year: 2010
Downloads: 109
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Abstract

The CPA's role is to increase the reliability of information in a corporate audit, thereby reducing investors and other users of information for decision-making related risks. More precisely, the certified public accountant to reduce the risk of information that is used to make the decision-making of financial and accounting reports of the risks of material misstatement. Typically, enterprise management authorities prepare and provide financial information for their own interests is likely to accounting fraud, resulting in financial information provided does not truthfully reaction fair financial situation and operating conditions, so that decision-makers to make the wrong decision-making, resulting in losses. CPA to provide the purpose of the audit of financial accounting report is to reveal the false part of the information or proof of the fairness of the accounting information to ensure that the financial and accounting reports in conformity with generally accepted accounting principles, the accounting information included in the fair, reliable, so that the decision-making make reliable decisions. Therefore, the CPA to the company's financial independent audit is an important part of maintaining order in the capital market. However, the certified public accountants audit the company's financial report, and not to fulfill the economic police, the maintenance responsibility of the capital market order, the Public Company Accounting fraud scandals have been exposed, causing huge losses to the vast number of investors, social The public outcry, and the damage to the capital market reputation and the credibility of the listed companies. With the development of the world economy, accounting firms and certified public accountants range of services also will be expanded into new areas, business relationships, however, become more complex, CPA audit independence unprecedented threats and concerns , national regulatory authorities are also involved in them. The IFAC Member States according to the draft began to re-evaluate the independence of the CPA. The United States in the post-Enron, that is, in 2002, enacted the Sarbanes-Oxley Act, an independent audit of listed companies to make further provisions: Requires hired certified public accountants to report to the audit committee rather than corporate management and the Audit Committee supervision; audit committee must pre-approve all services provided by the accountants; accountants must be reported to the Audit Committee; prohibit the provision of certain non-audit services, including accounting, information systems design and implementation, assessment services, actuarial services, internal audit, an audit partner and audit review of management and human resource services, brokerage and investment banking services, and legal or professional services unrelated to the audit, as well as the Public Company Accounting Oversight Board is not allowed; participate in public business partner is required every five year rotation; one of the senior officials (Chief Executive Officer, the Comptroller General, Chief Financial Officer, Chief Accountant, etc.) once employed by the accounting firm and worked in the past the company's audit, the accounting firm not provide audit services for listed companies. After the implementation of the Sarbanes-Oxley Act, is no longer the past simply by industry self-regulatory organization and management of Certified Public Accountants, but stressed that the government supervision of certified public accountants. SEC established the Public Company Accounting Oversight Board, the Public Company Accounting Oversight Board oversight by the SEC. Public Company Accounting Oversight Board is comprised of 5 members, they will oversee the audit and investigation of listed companies and accountants, and violation of laws, regulations and rules of corporate and personal sanctions. In 2002, China Association of Certified Public Accountants has issued guidance on the Code of Ethics of the Chinese Institute of Certified Public Accountants certified public accountants at the time of the audit shall be without prejudice to its independence. As mentioned earlier, the scholars and the relevant regulatory authorities a lot of opinions about the reforms, including the establishment of an audit partner rotation. But, why the results achieved is very small? Just think, when the quality of the service is generally not high and appeared frequently in the quality of the accident, and determine whether they mere service providers, and in them to find a cause, rather than hiring the right institutional looking for a solution? for the problem, however, academia and not formed a unified view. This paper attempts to analyze the representative hiring the right system - SFC mode, the financial statements of insurance model, the Audit Committee mode, through game theory analysis and mathematical derivation in-depth analysis on this basis, to a suitable for China national conditions optimal audit selection system. This paper is divided into six chapters. The first chapter is an introduction, an overview of frequently appears from the accounting scandals at home and abroad, to the importance of the independence of the Institute of Certified Public Accountants audit selection system, followed by the scholars recognize the independence of the Institute of Certified Public Accountants. Also included are related to the appointment and audit rights literature review and independence literature review, research purpose and method of contribution to the study and innovation. The second chapter focuses on the audit hiring the right theory, in the modern economy and China's national conditions, audit the status quo of hiring the right how. Then introduced the development of the audit selection system, including far hiring mode, their features, advantages and disadvantages. The third chapter, first from the Audit hiring the right are two basic modes, analyzes the two basic modes CPAs and accounting reports provided by the game tend to favor. Then analyzes the equilibrium conditions of the audit hiring the right mode. CPAs and accounting report provides a preliminary analysis by the course of the game, initially revealed certified public accountant to give up or to maintain their independence conditions. Chapter proposed the hypothesis of the study, further analysis of the game all the balancing process, and draw the utility function of the parties to the game. And to expand the mode II - that is, the accounting report has the audit selection over the mode of game of the profits obtained certified public accountant to give up or to maintain its independence function. Chapter 5, in accordance with the conclusions of Chapter IV, respectively, the mode of the Audit Committee, the SFC mode, the financial statements Insurance System analysis and contrast the different conditions of certified public accountants to give up or to maintain the independence of several modes. The sixth chapter is a summary of articles. Is a summary of the third to the fifth chapter of the content and conclusions drawn China's current situation which audit selection mode should be used most effectively improve the independence of the CPA. The third to the fifth chapter is the main part of the article as a whole. This paper attempts to analyze the a representative selection right system - SFC mode, the financial statements of insurance model, the Audit Committee mode, on this basis, through game theory analysis and mathematical derivation in-depth analysis in order to get a suitable for China optimal audit selection system. Economic game theory, incentive theory, and then come to the Audit Committee Audit hiring mode, the audit selection mode of the SFC, the financial statements insurance audit selection mode registered accounting waived or maintain their independence conditions, which reveal implied by law that the audit selection rests in the hands of regulatory bodies outside the enterprise, the Board of Auditors hiring the right mode can more effectively improve the independence of the CPA. Of course, the analysis also ignores the external regulator has the authority audit hiring the right to bring the cost of certified public accountants to improve the benefits of independence compared to whether it is worth. But single into view on the independence of the CPA, to master the right to audit selection by external regulatory agencies will be more effective. Audit Committee in China since the implementation of the research and testing done by scholars from a certain extent proved this point. Which external agencies to master the right to audit selection will be more effective? Study concluded that the financial statements insurance system is all well and good, but the system is still in the specification phase of theoretical research. And let a profitable financial institutions to take on this important task, probably at this stage nobody hand. SFC audit hiring the right mode, the SFC government regulatory agencies as a listed company, which itself is the users of accounting reports, and at this stage only the government has the ability to take on this important task. Therefore, the authors believe that the right to audit selection should be transferred to the hands of the Commission. The paper has three innovation. First, the research point of view of innovation. Society and academia have been concerned with the audit independence for decades, but this worldwide problem not only failed to solve, but intensified. In recent years, many foreign scholars to improve the independence of audit focus of attention shifted to the right to audit hiring up, because they believe that the audit of hiring the right institutional defects in the Certified Public Accountant difficult to maintain their independence. Domestic audit independence, most of the scholars is still the focus of attention on the audit fees, audit tenure, the company's financial position and angle, only a few scholars more systematic study of the independence of the audit hiring the right to audit affected. This article select from Audit hiring the right model perspective audit independence, is also based on the research and documentation of the colleagues are small, this study as a contribution to the research on domestic auditor independence. Second, innovation in research methods. In the nearly five years of research on the audit selection rights, whether foreign or domestic, most remain in the study of the the theory throughout academia audit independence, most of the basic theoretical explore. From the basic theory, the combination of economic game theory and incentive theory, the application of a number of mathematical methods floor school model, derivation, and the corresponding conclusions, policy recommendations to the appointment of audit rights on research methods and related research has contributed to the independence of the audit. Third, the study of innovation in the content. Domestic research on the audit of hiring the right selection mode of the Audit Committee, the appointment of the SFC mode and Ron's financial statements insurance system. But mostly separate study of a pattern. In 2006, Long small sea in the doctoral thesis of the audit hiring the right mode to do a systematic study academia response, but he was two abstract pattern rather than a specific audit selection mode research. The content selection mode of the Audit Committee, the appointment of the SFC mode, the financial statements insurance system analysis and reasoning, more comprehensive response to the current three audit hiring right mode of audit independence obtained three modes improve auditor independence.

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