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China's securities market introduction of international accounting firm theoretical analysis of two-trial system

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independent and effective audit service to a large extent on information asymmetry in the stock market to reduce the potential negative impact. Needless to say, in ensuring the authenticity of information disclosure of listed companies in terms of audit services accounting firms has an important influence. From the perspective of economics, accounting firms are able to maintain the independence of audit services, and professional standards to maintain credibility, it depends on the specific market environment, market structure, this independence of the audit services for the needs and interaction between two aspects of the supply process; for the accounting firm, its whether in the provision of audit services to maintain independence and professionalism, the same is based on the accounting firm in as rational economic agents to balance risk and return on selected The results, which provide an independent accounting firm to promote effective services, the effective angle of approach is the micro adjustment induced by the system in specific measures to change the risk-benefit balance of environment, from the perspective of industry, accounting firms, will have to examine the reality economic environment, the existence of independent audit services for the demand, and existing firms are able to supply these needs, if the reality does not produce an independent and effective audit services for the demand, and existing market players are also difficult to provide consistent required audit services, then the introduction of international accounting firms to external forces to change the current accounting firm market structure and market supply and demand status, is one of the measures should be taken into account.
the above analysis can be regarded as the current Chinese stock market is basically the introduction of international accounting firms to support two-trial system in the context of the theory. December 31, 2001, the CSRC promulgated the : starting the company in the securities market to raise financing, placement of shares and then additional financing, hire a qualified domestic securities practice accounting firms, according to China's Independent Auditing Standards in accordance with Chinese accounting standards to its accounting system and information disclosure norms statutory financial statements prepared audit; the same time, hire by the China Securities Regulatory Commission and the Ministry of Finance special permission of the international accounting firm, according to internationally accepted auditing standards in accordance with international access to its accounting and disclosure standards for the preparation of financial statements to add the supplementary audit. The introduction of audit services in the international accounting firm (mainly the global
market interests is bound to provoke debate re-partition, for example, in the U.S. market, some small accounting firms to blame some industry organizations, intermediaries and listed companies prefer the is a small accounting firm of discrimination and so on. The China Securities Regulatory Commission introduced two-trial system, will naturally be criticized for the domestic accounting market will give it to hand over the international accounting firm. Shaking moment, especially the United States Enron case is exacerbated by the controversy, as Enron's auditor Arthur Andersen as the company received widespread criticism for this, the domestic market and other international accounting firm of Arthur Andersen in China can market performance of the independent audit criticized doubt and speculation.
Therefore, emotional arguments aside, we need to discuss is whether the Chinese stock market in the current environment, whether on the accounting firm's demand for an independent audit services? Whether existing accounting firm to provide efficient services to the independent audit? If you want to introduce the
an international experience shows that in the accounting firm's audit services market, usually the need to analyze the audit services market, the market structure and market characteristics. From an economic sense, the audit services as an important service activities, with many of the products is usually an important feature of the market is different, for example, the audit service can not be wholesale sales, and almost every service products to a certain extent is unique; in the audit services market, the degree of product differentiation, price differences, and audit services by the purchaser should have the knowledge, etc., compared with the usual market are basically different. Summed together, the audit services market is an important characteristic is the distinction between the product and the price difference is very obvious, but in retaliation for the consumer market, and to take proactive measures, etc. are very limited opportunities. These are the services of audit firms of different sizes between the factors.
In this market environment, the large accounting firms have a stronger motivation for the reason to provide the high level of independent audit services, mainly based on the following reasons:
First, the accounting firm As rational economic agents, whether they provide independent high level of service usually depends on the risk-return tradeoff. The same in the case of other conditions, usually an accounting firm with the larger customer base, this accounting firm for a particular customer's pressure and the likelihood of its relatively small hide. For audit services, greater customer base, accounting firms can save a considerable scale start-up costs of audit services (that is, to provide audit services are familiar with the initial learning cost customers), while customers the possibility of change is relatively firm small; if the interests of large accounting firms out of concerns, under the pressure of the customers hide the real accounting information, then. Obviously a large accounting firms accounting firms than the small loss of more interest. Thus, a solid customer base, the accounting firm could provide the relatively more independent,babyliss root boost, efficient audit services is relatively higher.
Secondly, the accounting firm sources of income concentration also affect the independence of audit services provided an important factor. Reality shows that when a listed company or a few income accounts for audit by the accounting firm of a large proportion of the revenue, the firm is often difficult when the audit client to maintain a good independence. In view of this, some U.S. accounting academic community requires its members to disclose the accounting firms that audit the total revenue income of more than 5% of customers. In fact, the United States Arthur Andersen Enron case is not well perform the important duties of the independent audit of one of the reasons that Arthur Andersen's revenue from over-reliance on Enron.
Third, the international accounting profession from the point of view, usually the main measure of audit quality leads and reference standard: the level of professional standards (that is, the ability of accountants to collect audit evidence), may face the pressure of litigation (that is, accountants audit failure may be the potential loss), customer buying firms the possibility of an independent audit opinion (that is, the auditor or the interests of the pressure induced by the customer and not a true disclosure of such information). International accounting firms is relatively more industry expertise, audit opinion as a result of problems to purchase a large accounting firms will be far greater than the losses suffered by small firms, which are usually bought for a large firm and the client the possibility of an independent audit opinion relatively small. Meanwhile, despite the large and small accounting firms are likely to face the pressure of litigation, but usually the big international accounting firms in relation to legal proceedings against the firm has a relatively good record.
addition, from the international market, as an objective proof of listed companies to hire qualified accounting firm, in fact, have an impact on investor decision making is an important signal to the international experience shows that a higher quality of audit services will allow the company's owners and investors a more high-quality accounting information, the listed companies on the large accounting firms are willing to pay a higher level of audit fees.
Therefore, just from a different scale, the large accounting firms providing audit services to the market more likely to provide more independence, efficiency and relatively higher service, so in a developed market economy, the large accounting firms competition in the audit services market has certain advantages, which is constantly promoting the integration of international accounting firms and industry concentration is one important reason for steadily improving.
the other hand, China's current accounting firm market, showing just the opposite trend with this international trend, the country occupied by a large accounting firm's market share tends to decline in some types of small firms are affiliated divided the market share of these large firms, which reflects the current from one point of market competition in the domestic accounting firms to some extent, toward the disorder. China's stock market, if the CPA violations, may be canceled securities qualification, the large accounting firms listed clients much more than small firms, so if the violation has been canceled because the securities business qualifications, a greater loss of large accounting firms, large accounting firms in the economy and thus the motivation to maintain more independence with a motive. However, in the current market environment, with the listed companies usually need more accountants, with different levels of government intervention in the securities listed on a business reality is that some large accounting firms in China's market share because of its the higher the declining independence, combined with excellent brand accounting firms lack the market, pressure from the legal proceedings is not high, and the firm's governance structure and the external management system and other defects, making the firm's exit costs are relatively non-compliance low, which makes the current accounting firm concentration does not appear on the market to improve market integration trends. According to statistics, from the accounting system in 1981, restoration date, relevant to practitioners in the implementation of
the current stage of China's two stock market is also a lack of high demand the independence of the voluntary system of environmental audit services
usually perfect market environment, the audit services market, there will be voluntary, or a spontaneous the demand for audit services: Investors want high quality accounting information for investment decisions, management hopes to obtain through an independent audit firm confidence in the market, listed companies through the people that after the independence of audit firms more access to more a high premium. Demand in the promotion of these voluntary, accounting firms also have incentives to provide independent audit services.
, however, and developed a market economy in sharp contrast to the situation is that China's current stage of the accounting firms on the market, usually the independence of the low, to take the initiative to meet the needs of the firms listed companies. Chinese stock market based on current environmental and institutional conditions of view, listing qualifications for obtaining a large number of cheap money usually means the power, the listed eligible to become very scarce resources, firms listed companies usually just want to qualify for the listed companies to provide cooperation to fight regulatory or non-compliance support, and do not necessarily want it to provide independent audit services. The current review of the listing status is the main financial indicators of enterprises must have a surface more than 10% for three consecutive years of net return on assets, that is, if the company's performance in recent years reached more than 10% return on net assets, in theory, to can apply for funding in the primary market. High price-earnings ratio, the only one IPO, the premium can be accumulated large capital fund. Thus, it is possible to stimulate business in pursuit of qualification from the report listed the book on the manipulation of According to the Chinese People's University Department of Accounting and Yang Geng new listed company Crane analysis of the situation to change accounting firms since 1995, to change accounting firms accounted for A shares of a listed company's share of the total number of listed companies showed a rising trend year by year from 1995 0.7% to 6.06% in 1999, while the listed company to replace the accounting firm is one of the two main reasons to buy accounting policies, that a listed company to change its accounting policy disagreement in the firms, turn to employ their accounting firm consensus policy
perspective from the security company, a securities market, fierce competition makes the company to focus on meeting the various expectations of listed companies, usually require the cooperation is relatively firm. In the developed stock market, stock underwriters generally require the issuer to employ a reputable accounting firm to the market as a trial firm in order to increase investor confidence and the issue of the chances of success.
some of the current state-owned enterprises listed on a lot belonging to local government control, which listed in some places, companies often means to alleviate the financial burden and increase the local leaders of the achievements at this time if the actual control of the company again in the hands of local government officials, So, in order to meet listing qualifications to force accounting firms may induce false.
Looking further ahead, even if the companies are listed, can not flow to dominate the public shares this particular ownership structure, making the state-owned shares and legal person shares accounted for controlling the absolute right of the public's right to vote by hand is almost difficult to play with feet tend to vote only after the remedial measures. In this arrangement, the public is difficult to disclosure of accounting information by focusing on such a long-term investors, and often evolve into short-term interests of the speculators seeking. Placement of shares of listed companies in order to maintain eligibility, or to avoid being delisted, and was special treatment, as well as some insider trading and market manipulation of the need, but also stimulate the listed company's independent audit of the accounting firm to exert pressure and influence.
the one hand, is a reality, the lack of independent audit services for the needs of the voluntary market, on the other hand, from the supply industry, accounting firms there are many problems: in fact divided into the Chinese CPA examination and the examination had that two of the industry standards of personnel practice varies; many accounting firms are basically administrative departments or institutions by the organizer, not conditions for a large number of firms produce, the competition for the market to accommodate customers at lower prices or even false, and a large number of small firms are often highly concentrated in a few business their customers; from the governance structure, the vast majority of firms with limited accountability.
three U.S. events have highlighted the Enron mature markets, the independent audit services for the accounting and auditing spontaneous demand checks and balances on the market in the China Securities Regulatory Commission decided to introduce
the two-trial system introduced after the Enron incident triggered the outbreak of domestic accounting firms for the
In fact, as a profit-maximizing market players, Arthur Andersen and Company to provide audit services in the same risk and return trade-off, a large accounting firm and does not guarantee the independence of audit services will not question the lack of , in fact, the accounting profession in the United States United States on the development process there have been many false events, even well-known international accounting firms are suspected of fraud cases investigated and prosecuted quite a few, for example, in 1985 the SEC on Ernst & Young The Audit of Hutton questioned; 1987 Securities and Exchange Commission SEC accused two KPMG audit in illegal behavior. Even if these problems, the U.S. accounting industry as a whole is still able to maintain considerable credibility, the reason is that the U.S. market through specific design of the system, the formation of the different markets of the main independent audit services for the spontaneous demand, while the regulatory authorities through the establishment of a sound mechanism to monitor and audit market constraints to good checks and balances.
Thus, in analyzing the Enron incident, the independence of audit services and audit quality, the greater concern is that progress in Enron case also shows a mature market, independent accountants for audit services voluntary demand, this demand in the U.S. Securities and voluntary promotion and strengthening of regulatory authorities, the audit market has formed a relatively tight checks and balances mechanism, incentive and restraint mechanisms. If there is sufficient evidence that there is deliberate concealment of Arthur Andersen's technical problems, it may face substantial penalties, and its credibility in the global industry will disappear. At this point, the different market players driven out of self-interest to provide checks and balances, the U.S. regulator is provided to these stakeholders the legal means to realize their own interests, while a partner with unlimited liability makes the accounting system to bear unlimited liability in the form of business caused by error or fraud risks.
four start from the introduction of international accounting firms, audit activities to promote the independence of China's stock market increased
Therefore, in the current market environment, China's securities market is still relatively lack of independence of audit services for spontaneous demand, the existing governance structure of accounting firms and management system, also constrain the supply of independent audit services, while the dispersion of the Chinese accounting firms and low-level repeat issues also make it difficult for the credibility of the brand of quality audit spontaneous integration through the market in the short period of time to form, so that the introduction of international accounting firm to audit the securities market activities to promote independence as an important system to improve innovation.
In fact, the short term, the introduction of international accounting firms is not necessarily the accounting firms on the domestic impact of market share, as the international take market share.
However, if the stock market from a fundamental solution to the independence of audit services, the need for further independent audit services from the demand and supply of two angles to proceed:
First of all, to begin training for the independent Chinese Stock Market audit needs of spontaneous, which of course the first thing to improve the market's listing qualifications and listing pricing review mechanism, reasonable definition of the function of the securities market positioning. From the perspective of the different market players, which include: from the perspective of listed companies, to advance the state-owned shares in circulation, improve the corporate governance structure, change the current influence in the listed companies to establish more independence of audit committee should have financial experience primarily by independent directors. From the perspective of underwriters, the listed market through the improvement of qualifications and performance evaluation mechanism for the review mechanism, market pricing mechanisms, to promote the independence of the underwriters pay attention to the high office through the selection of potential investors as a
Second, the independent accounting firm audit services from the supply point of view, to the full implementation of the accounting firm in partnership, the establishment of related civil compensation mechanism, improve the accounting firm's own governance structure; play intermediary organizations (mainly Certified Public Accountants, etc.), the role it has more independence and impartiality, can protect the interests of the CPA profession, but also to take regulatory responsibility and punishment industry malpractice.
is worth emphasizing that, even if the full implementation of China's current system of securities market accounting firm innovation and market-oriented reforms, but also can not completely eliminate the false accounting information and the lack of independence of audit services and other issues, however, because With that the independent audit for the spontaneous demand for services, and the market also has ability to provide this demand, coupled with intermediary organizations and regulatory agencies to establish checks and balances through the market, the restraint mechanism is disclosed for improving the quality of accounting information to improve the credibility of the market No doubt there is a considerable positive.
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