Price competition on the audit industry, the impact on audit quality

Because China's audit market competition, many firms in order to attract and retain customers, to take a lot of illegal means to achieve their goals. The most common is the unprincipled to reduce audit fees and to accept the customer's unreasonable demands. Accounting firm issued false Overall, the report largely for two reasons: First, as motivated by profit, loss of proper professional ethics, the second is to keep existing customers.

First, the audit industry, price competition on the impact of the CPA
(One not conducive to the improvement of audit quality
United States, a Research organization in the study of the relationship between price and quality of practice after the following conclusions: the time and budget pressures often lead to audit failure. Obviously, the audit fee price competition will inevitably cause severe budget pressures, resulting in audit quality down, more independent audit can not achieve the goal - the audited financial statements of legitimacy and fairness opinion.

Since the implementation of China's major asset is currently a certain percentage of the total audit fees charged, had this ratio on the low side, and then discount it down the accounting firm's profit margins, even down to below the cost. As the audit industry, the industry is profitable, can not be operating at a loss, therefore, lower audit fees must be at the expense of audit quality for the price, in order to achieve the purpose of survival.

(B is not conducive to improving the quality of firm personnel
As a service accounting firm, the core of talent is to generate profits. Without high-quality employees, work efficiency and quality can not be guaranteed, is not conducive to the firm's long-term development. Moreover, the shortage of recruitment costs and lower Salaries will increase the firm's mobility is not conducive to long-term stability and development firm, is not conducive to providing a true and reliable audit data.

(Three firms is not conducive to enhanced ability to resist risks
Accounting firm's audit costs include two parts: First, the direct cost of the audit, and customer size, the complexity of the audit and other relevant, and second audit of the insurance costs to defend against possible future litigation risk or the risk of punishment, When a customer is likely to occur when the business fails, the higher the proportion of insurance costs.

Firm will result in lowering the risk of audit fees lower than the actual cost of insurance funds, resulting in lower resist the audit firm risk, unable to cope with unexpected administrative penalties and litigation costs.

(D is not conducive to honest practice of the firm's survival, causing confusion in the market competition
Faith practice Certified Public Accountants because other firms take the behavior of low-cost football industry lost a lot of customers, which suffered huge losses, not even survive. If you can not effectively curb the spread of vicious competition, the audit market can not form a fair competitive environment, resulting in chaos in the audit market, audit information to further reduce the reliability and authenticity.

Second, the audit industry, analysis of the causes of price competition
(A) of the audit market supply and demand imbalance, excessive competition in the market
As the number of accounting firms is far greater than the number of listed companies, resulting in both supply and demand imbalance, which will definitely lead to firms scramble for customers between the vicious competition in order to keep large customers, the firm auditing the more pressure, the lower the price of the audit profit is also reduced, leading to the audit has become a veritable "signature tools." which is difficult to audit a listed company inflated profits and hide debt and other major financial problems, improve their audit risk.

(Two credit rating agencies lack the auditing profession
Reputation is an intangible asset, to give the market a guarantee of signal quality in the case of asymmetric information, the signal for reducing the role of adverse selection is critical because of information asymmetry, which is prone to reverse choice if the audit industry, there is a sound credit rating system, the audit client before signing with the firm can more fully understand the firm's capabilities and service quality, it can as much as possible to avoid the occurrence of adverse selection.

(Three of China's low level of audit risk costs
First, due to the generally small size of firms, they face less risk because there is "deep pocket" liability phenomenon, under the same conditions, audit clients, investors and other stakeholders are more likely to sue the big accounting firms Thus, large firms are expected litigation losses and restoring the reputation of the potential costs than small firms to large.

Secondly, the CPA and the firm's punishment ineffective. Our judicial system is the adherence to the "who advocates, who the burden of proof" principle, which will no doubt greatly enhance the action threshold, greatly increased the cost of the proceedings, victims costs and benefits in more litigation circumstances, often abandon prosecution. At the same time, these conditions limit the action object, and, because they do not accept the class action, the firm will not have to bear the huge liability of these are greatly reduced in the fundamental law firms and audit risk.

(D impact of government action
First, our audit fees is to use the principle of government guidance price, the price management department authorized by the State to determine the industry's charges in the AICPA standards to guide the firm charges the second, the average working hours in the audit fees should be based on considerations of cost charges necessary taxes and a reasonable profit, combined with market supply and demand analysis. Third, the audit fees should reflect the complexity of the services, level of qualification firm's social reputation.

China's audit industry to adopt price controls for two main reasons: first, to prevent a monopoly of production, especially in the accounting firm is still in the affiliated system, some companies did not choose the firm's initiative is very easy to create a monopoly situation, thereby enhancing the auditing fees and second, to prevent the firm by reducing audit fees to attract business, creating a vicious competition audit fees.

Implementation of price controls will help the healthy development of China's auditing profession, but in the specific implementation of the process due to different levels of economic development around, gave some "cheap football industry," the opportunity to present the country has not yet formed a unified fee Standard Table 1, Table 2 Beijing, Tianjin, Shanghai and Shenzhen city issued four audit reports of the price standard of visual comparison.

To sum up, due to differences in levels of local economic development, local business audit fees did not reach unity, this can easily lead to accounting firms around the unfair competition between not only that, due to the different charges, to increase a governance audit of the difficulty of cost cut-throat competition, for some firms retain customers by providing low-cost opportunity.

Third, the containment response to the audit industry, price competition
(A strict market access system audit
Solve the imbalance of supply and demand audit of the accounting firm a way to set up strict standards to the limit is reached relatively low overall quality of those firms into the market in order to prevent spread of some low-quality audit firms supply the market, it should be strictly accounting market access system.

Accounting market access system is the first step in building a good accounting market, so our government to give them a great attention. Although the government has enacted a number of laws and regulations to restrict market entry behavior of accounting, but because of China's current laws are not perfect , the lack of order in the accounting market access strong chaotic behavior regulation due to various departments at present there is no clear division of responsibilities, resulting in lack of communication between institutions, weakened the accounting supervision. So now coordinate the various regulatory bodies to monitor communications in order to achieve the best effects, the appropriate increase in the firm establishment of the conditions is also a way to achieve their goals. Links to free download http://www.hi138.com (b) the establishment of firms and certified public accountants of the credit rating system
In China's audit market, not only to the implementation of the CPA firm also credit rating system, and ultimately make the product according to quality audit services, to avoid price competition, credit ratings can refer to American Institute of CPAs to carry out the Vision project drawn from the CPA should have the core values ​​(core values ​​and the CPA should have their own core competencies (core competencies in the relevant indicators is worth to be stressed is that credit ratings can not engage in security of tenure, should be independent and impartial expert assessment committee on a regular basis to assess firms and certified public accountants and made public, and in accordance with the merits of their performance at any time to adjust their level and if the mechanism together with the firm exit mechanism, to achieve a credit rating gradually replaced by a variety of qualification , you can gradually eliminate the securities and futures-related business licenses this type of "shell."
(C increase the fault of law enforcement and punishment practice, improve compliance costs
As one CPA firm is for-profit organization, on the other hand it's a special socio-economic status, will definitely lead to professional ethics and their short-term occurrence of certain conflicts of interest at this time, the government through legal and economic instruments, so offending firms and certified public accountants to pay a higher price in order to curb the illegal activities of Certified Public Accountants.

China's violations of the CPA lighter penalty litigation mainly by China's rules and the accounting firm's organizational structure decisions. These two fundamentally change is more difficult, but can still increase the penalties for multiple offenders punishment to make up some of the institutional shortcomings, while the relevant regulatory authorities should improve the accountability mechanism, the responsibilities to the individual, the establishment of a civil compensation mechanism, so the cost is far greater than the firm's non-compliance violations income, thus accounting firm deter violations.

(D Improvement of the audit fees of the laws and regulations
The sound development of an industry must have appropriate and reasonable laws and regulations support our audit of the industry most need to develop a reasonable national standard charge. Currently, the implementation of effective government regulation of the audit fees, formulate a reasonable price is still a bottom line effective way, but to be audited assets as the basis to develop criteria for the charges is not science. the development of audit fees need to refer to socially necessary labor time, should be developed to work-based national standard charge, in addition, but also the risk factors into account, in order to establish a truly rational and scientific audit fees.

In addition, the method for determining audit fees also need to be adjusted accordingly. First, in addition to the price the government departments involved in pricing, it should be considered to establish a collective system, combined with the characteristics of the audit industry, consulting industry, department and other advice and suggestions direct interest in the fully listen to opinions and suggestions of all parties, based on the determined price criteria, the final cross-agency through collective deliberation. Second, the fees and non-audit services can distinguish between the pricing of audit services, audit services as to bear the corresponding legal responsibility, risk, should implement the principle of high risk and high reward, except for non-audit services can be managed or do not develop the way guidance.

Improve on the audit fees of the laws and regulations of China's legislative body's mandate, but also requires a large professional help and only pay attention to the economic development of a dynamic grasp, pay close attention to practical development, accelerate accounting standards the pace of building is also necessary learn from the advanced use of international experience in the field of accounting, in order to curb the spread of many problems.

CONCLUSIONS
In short, the auditing profession should be combined with our own actual situation, clean audit industry environment, comply with industry rules, to ensure that investors, creditors, government and other full use of corporate financial reporting, to promote the health of the enterprise, sustainable development, promote economic stability development.

References:
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