Weakening the independence of CPA Audit Causes and Countermeasures

Abstract: The high demand for the independence of the audit services market deficiencies and defects in the relationship between the audit commission is weakening the independence of certified public accountants audit the Economic and institutional causes of motivation, and audit compliance and low cost are contributing to the weakening of auditor independence. Should foster the independence of certified public accountants of high audit services to start, build a reasonable relationship between the audit commission, audit violation penalties increase, accelerate the improvement of market environment, and improve corporate governance and related legal liability system in order to effectively improve the CPA audit independence.

Keywords: Certified Public Accountants audit, the independence of weakening, Causes and Countermeasures.

CPA independence is the soul of the audit, if the CPA in its lack of independence of the audit, it is difficult to be objective, fair and will directly affect the quality of audits. In recent years, with the major international series of accounting fraud successive exposure, a number of violations of accounting firms have also surfaced, most in doubt the independence of certified public accountants audit. This article attempts to weaken the independence of certified public accountants audit the causes and corresponding solutions are discussed.

First, weakening the independence of certified public accountants audit the cause.

1. High market demand for independent auditing services is the lack of audit independence weakening Economic motive.

Audit services from the demand side, China's audit market, the demand for the independence of audit services subject to higher effective demand is insufficient. The main demand for audit services, including investors, creditors and government departments, which include investors, and specific state shares, legal person shares and individual share investors.

First, demand from the investors point of view, China's State-owned shares of listed companies in the total share capital of a large proportion (about 40%, but in the case of the absence of state shareholders, the state share of the independence of audit services can not be higher the formation of effective demand. on the legal person shares investors, the legal person shares of listed companies to send representatives to the board of directors and supervisors, and listed companies have an impact on major policy decisions, therefore, no need for corporate shares issued by listed companies outside the financial information understand the operations of listed companies, there is no need to select a higher service independent certified public accountants audit the reliability of its financial statements to be monitored, that is, the higher the independence of corporate shares does not constitute an effective demand for audit services. individual shares Theory the independence of audit services is high demand for the real person, however, as in the period of transition economies the stock markets are highly speculative, the majority of the value of public investors are not the type of investment. Thus, the independence of public investors in high the demand for audit services is not strong.

Secondly, from the demands of creditors, the current state-owned commercial bank loan financing is still the main channel of listed companies, while state-owned commercial banks face the same level is not high, the absence of owners, lending practices and other issues vulnerable to administrative intervention, and the huge loans even bad ones, and ultimately there will be countries foot the bill. In this context, banks pay little attention to enterprises (especially large state-owned enterprises of the loan risk management, with a corresponding accounting information of enterprises understand the real desire is not strong. Therefore, the major creditor of many listed companies in the independence of audit services to the high demand for the same is not strong. the Government, as external demand for corporate financial information, and regulators, the independence of audit services to higher effective demand exists, but only rely on government difficult for external demand for the independence of the audit services market with high healthy and rapid development.

From the above analysis we can see, our audit of the audit services market, the demand side of the high demand for the independence of a serious shortage of audit services, which will lead directly to certified public accountants in the provision of services to maintain independence for the inherent lack of Economic power, resulting in "Bad money drives out good money" phenomenon.

2. Drawback is the relationship between audit commissioned by weakening the independence of the audit system root.

Property ownership and management audit of the separation is the origin of CPA. In accordance with the principal-agent theory, the audit is the relationship between the three parties accepted the auditor commissioned by the owner entrusted to the operators of the fulfillment of Economic responsibility audit, and audit report the results to the client. From the perspective of corporate governance, audit commissioned by the CPA on behalf of shareholders approved the decision to the owner or by the Audit Committee under the Board and CPA firms Zhudao appointment. However, the audit practice, due to the dispersed ownership of modern joint-stock companies, the real audit client that is entrusted to exercise the right of all shareholders is not realistic, the actual audit commissioned by the major shareholder rights are often controlled by the Board of Directors as well as the control exercised by the manager . especially the majority of our listed companies are state-owned enterprises from "restructuring" list, inherent in the restructuring of large shareholders, board of directors and general manager of the pattern of the Trinity and the absence of the owner of state capital, making the operators power is hugely magnified, business management can easily manipulate the board to form a serious "dominance", "internal control" phenomenon. As a result, relations between the three parties in the audit, due to the absence of the principal management of the company's business both by auditors, but it is also the principal, the normal relationship between mutated audit, management is not only the final decision to hire a CPA to employ and how much the cost of the payment of audit costs, but also determines the up accountants to provide audit, consulting and other services cost structure, which is not consistent with the audit relations theory, not in line with agency theory. This variation between the audit commissioned by the CPA's independence is a fatal blow to the audit the root causes of lack of independence. In addition, the current corporate governance structure, some companies often can not because the CPA audit report required by the company and dismissed its accounting firm providing audit services, and accounting firms and the real reason for change often not a reasonable disclosure, which to some extent, also contributed to the independence of listed companies on the impact of accounting firms.

3. Audit irregularities and low cost contribute to weakening the independence of the audit.

China <<Certified Public Accountants >>,<< accounting >>,<< Securities Act "" and "<Penal Code>> so involved with the legal responsibility of the CPA provisions, mainly in the main administrative responsibility, supplemented to civil liability and Criminal liability, in general, lighter punishment, and those involved in the legal liability provisions CPA there are many contradictions, poor operability. From the independence of certified public accountants of the current lack of investigation of cases situation, also showed a heavy administrative responsibilities, Criminal and civil liability light characteristics, and civil compensation system is not perfect. Although the Supreme Court <"On the stock market because of false statements trial of civil compensation cases caused by a number of provisions>> and "" On the admissibility of securities triggered by a false statement on the issue of tort disputes notification>> on the trial of civil compensation cases Securities and provisions made systematic interpretation, which refers to the accounting firms and certified public accountants of the civil liability . However, the foregoing objects and notifications will be accepted is limited to false statements, and only to the securities regulatory authorities have been making the case for entry into force of the decision on punishment, and only the Intermediate People's Court to be admissible, the pre-program to increase the cost of rights of investors and the difficulty of making a civil compensation CPA Audit prosecution rate, the rate of ending, and compensated low, rather than accept the class action, then the astronomical amount of compensation reduced from a "few", the objective of accounting firms and leading CPA bear civil liability is very low. our Law on accounting firms and certified public accountants of illegal activities in the administrative, Criminal and civil aspects of punishment is not enough, so that greatly reduced the cost of CPA violations. CPA violations, the illegal profits obtained assume responsibility far beyond their expected costs of breach, objectively facilitated the independence of certified public accountants abandon speculative adventure impulse.

Second, improve the independence of CPA Audit Strategy.

1. To improve the market environment, foster effective demand for high quality audit services.

Capital markets at this stage, the independence of audit services for high-demand situation not very strong, we must first cultivate and improve the quality of audit requirements for the support of the environment. To improve regulatory policy through the securities market, the company of property rights and government reform reform policies to promote the supporting guidance and training of information users of high-paper format independence of audit services. such as the existing shares under the stock issuance mechanism in the success rate is very low, investors can purchase as long as the successful listing of the day dished out you can get huge profit, it tends to stimulate the speculative desires of issuers operating results and less concerned about the independence of certified public accountants. If you change the stock issuance system for the registration system audit can guide investors turn their attention to concerned about the issuers operating results and the independence of certified public accountants. Second, to foster sophisticated investors. sophisticated investors is to promote voluntary employ the audited entity the largest high-powered independent auditors, the auditors are able to monitor the provision of whether the process of audit services to remain independent. Third, we must increase the disclosure efforts. the one hand, changes in accounting firms to disclose in detail the nature of such matters as the reasons for information users to identify whether the audited entity managed by changing the accounting firm to buy the audit opinion, on the other hand, detailed disclosure of the audited units to management differences with the CPA in order to keep track of information users and monitor the differences in the final solution, and then monitor whether the CPA has maintained his independence.

2. Improve the corporate governance structure, establish a reasonable relationship between the audit commission.

First, we must continue to promote the state-owned shares. Since 1994, the Commission, Economic Restructuring Commission and other departments around the state-owned shares has introduced a series of reform measures. On this basis, we must continue to advance through the adjustment of state-owned shares of listed companies ownership structure, actively develop institutional investors, to allow and guide funds, insurance, pensions, institutional ownership, the company property to be clear, from the capital markets to strengthen the power of external supervision in order to really solve the current phenomenon of insider control, weaken the power of management. to change the Certified Public Accountant employed by the operators, the operators have to monitor vulnerable position. Second, the Audit Committee should, as the basic elements of corporate governance to enhance the statutory audit of listed companies to the status of regulatory reform CPA audit commissioned by the current appointment system, to build a reasonable relationship between the audit commission to improve the independence of CPA audit. may learn the practice of the U.S. Sarbanes-Oxley Act, the provisions of the statutory audit committee is a listed company's audit regulator, the Audit Committee directly responsible for the employment of Certified Public Accountants, the amount of audit fees and other important issues, the CPA directly to the Audit Committee. At the same time, the Board must be composed entirely of outside independent directors and at least one financial expert, and an independent financial authority, to ensure the independence of the Audit Committee. In addition, the independent directors as an independent director posts in addition to access to pay, not from the listed company and its affiliates receive any form of other compensation, the composition of the Audit Committee to ensure the independence of independent directors.

3. Improve the relevant legal liability system, increase penalties for audit irregularities.

First of all, to pass Laws to clean up, compilation and codification of legal responsibility to achieve CPA regulations systematic, coordinated <<>>,<< CPA Law Securities Law >>,<< >>,<< Criminal Law> > Certified Public Accountants and other laws and regulations of the legal responsibility of the different provisions of convergence as far as possible in order to resolve the legal effect of CPA-related complex level, the content of conflicting issues, streamline the relationship between the relevant laws. Second, to strengthen penalties increase penalties. the one hand, a reasonable increase in Criminal fines and penalties in the amount of administrative responsibility, on the other hand to protect the interests of investors, fines and penalties do not affect the civil compensation. Third, we must improve the civil compensation legal system. shall be the registered accountant as soon as possible civil liability and judicial interpretation of the law, adjustment proceedings, the abolition of the pre-litigation procedure object, etc., and actively promote the establishment of group litigation system to reduce the difficulty of proof of investors and litigation costs increase the motivation of investors, litigation, and thus improve the civil compensation cost of CPA violations, due to lack of independence of the income is insufficient to obtain compensation for their losses, and thus the legal level, to ensure the independence of certified public accountants audit.

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