CPA industry expertise and the quality of the analysis of audit

Abstract: Industry expertise, the audit skills of one of the important elements. Most of the study abroad Industry, accounting firms that audit quality is positively related to expertise and the article for the Chinese market Research, found that audit listed companies in China market, but on the whole words, the accounting firm Industry expertise and audit quality is positively related and make policy recommendations.

Keywords: Industry expertise, audit quality, manipulation of accruals

I. Introduction
Level of audit quality depend on the auditor's independence and professional competence of the two aspects of the auditor's Industry expertise as the professional competence of the important part is the impact of audit quality is an important factor in the independence of the auditor established conditions, the auditor of the client's industry business processes, industry characteristics, required to follow specific accounting policies, in-depth understanding, help to improve their professional judgments and audit quality.

In recent years, China's audit market concentration increased year by year, the firm's brand reputation and industry expertise into the firm's customers to choose an important index. Abroad has been a lot of literature on auditor industry expertise on the impact of the audit market, generally speaking, foreign literature is basically that the auditor industry expertise will help improve audit quality, while for the domestic impact of auditor industry expertise to audit quality factor of the Research literature is relatively small, and the conclusion is not consistent. In order to enhance the understanding of the issues, this paper in 2007 and 2008 audit of listed companies, market data, based on the firm's industry expertise and audit quality the relationship between an empirical test.

Second, the Research hypothesis
Firm industry expertise on audit quality effects can be analyzed from the following three aspects, first, industry expertise, audit firms with more specialized skills and experience, with a result of economies of scale arising from low-cost or because of the size of the knowledge generated by Specialization knowledge and secondly, the development of industry expertise, the audit firm market, the inevitable result of intense competition, if firm for some special industries lack the necessary knowledge to understand, it may not be a correct assessment of its financial statements on the existence of water is estimated profits. Conversely, if the firm through industry expertise and audit services to their competitors and thus attract customers to differentiate and to be recognized, then the firm will achieve significant competitive advantage again, because the industry expertise to firms in specific industries continued to carry out special audits in technology, human resources, financial, material and organizational control in specific investments, when it provides a low-quality audit reports will inevitably result in non-industry expertise in relation to more negative effects in terms of firm, assume greater risk, so firms more incentive industry expertise to provide high quality audit reports.

Although the industry expertise to improve the quality of audits significantly help, but may also be due to over-reliance on the industry and firm harm their independence and reduce audit quality. How the combined effect of both impact on the quality of audit evidence required to be tested by experience We first set the assumptions:
Assumption: the quality audit firm industry expertise and a positive correlation
Third, the Research methods
(A) measure of firm industry expertise
Using the firm's industry market share as the industry expertise proxy variables, the variable was divided into two kinds of continuous variables and dummy variables.

Industry market share based on a specific industry as a starting point, a home inspection firms in the industry-specific market share targets.

1, continuous variables (MS
2, dummy variables (MS_D
If MSik greater than or equal to 10%, is defined as K i firm firm industry expertise, and to make the dummy variables MS_Dik = 1, otherwise MS_Dik = 0. 10% has been adopted as the threshold into the industry expertise, reasons twofold: First, foreign Research into the industry expertise often the threshold set at 10% -20% between two Chinese accounting firm's industry market share on average only 4%, if we set the threshold too too low will lead to each industry sector expertise with a greater number of firms, this industry expertise with the development of Chinese firms is still in its infancy does not match, so we learn from international standards lower - 10% of the industry division expertise threshold.

(B) the measure of audit quality
We use abnormal accruals (abnormalaccruals indicators to measure audit quality indicators reflect the abnormal accrual accounting choices and judgments on the use of accounting accruals manipulation of accounting degree, including the manipulation of accruals (DAC and the unusual nature of working capital (AWCA etc. In general, the quality of the audit should not tolerate a lower degree of control the level of accruals.

Manipulation of accruals based on Jones model adjusted annual sub-sectors and sub-sample estimates, calculated as follows:
One DAC is controlled accruals, TAC is total accruals (net income is equal to cash flow from operating activities minus net, ΔREV main business income is the amount of change, ΔREC changes in the amount of accounts receivable, PPE is fixed assets, the late addition to the above variables are total assets TA. to be estimated coefficients a1, a2 and a3, the regression equation estimated by the following:
TACjt/TAjt-1 = a1 (1/TAjt-1 + a2 * ΔREVjt + a3 (PPEjt/TAjt-1 Links to free download http://www.hi138.com (three model
Respectively, to control the absolute value of accruals as the dependent variable, to test the variables for the firm industry expertise, a multi-variable regression model:
DAC = β0 + β1SP + β2TAC + β3CFO + β4SIZE + β5HlEV + β6AGE + β7NEG + β8BIG4 + β9BIG7 + β10Y2007
One DAC is controlled accruals, SP for the firm industry expertise variable, were used MS, MS_D that of other variables as control variables: TAC is total accruals in addition to year-end total assets above, CFO is net cash flow from operating activities In addition to these year-end total assets, SIZE is total assets of the natural logarithm, HLEV dummy variable for the highly leveraged company, when the company's assets and liabilities is higher than 3 / 4 digits of 1, otherwise 0, AGE has been listed for the company number of years, equal to the annual listing of the fiscal year minus the year, NEG dummy variables for the loss of the company, BIG4 for the international "Big Four" firm dummy variables, BIG7 domestic "seven" firm dummy variables. Y2007 2007 dummy to control variables.

Fourth, the sample selection
This paper used data from the primary database CCER samples including 2007 to 2008 in Shanghai and Shenzhen Stock Exchange-listed non-financial sector companies sample of listed companies based on industry classification standards issued by China Securities Regulatory Commission in 2001 <<listed Company Industry Classification guidelines>> in the manufacturing because the company a few more, we use two industry categories, industry, other industries using a classification based on the primary sample, we deleted the sample of newly listed companies that year, shareholders' equity negative samples in the calculation of manipulation of accruals, we also excluded when the industry's sub-Year less than 20 samples to reduce the model to estimate the error, and finally, the effective sample size of 2178. This data processing and Statistical analysis using Eview3.1 quantitative analysis software.

Fifth, empirical results
(A descriptive Statistics and univariate analysis
Table 1 lists the variables descriptive Statistics from the table can be seen, the industry market share (MS mean is 0.0381 (median 0.0186, showing that China's accounting firm, the average low level of industry expertise, from Audit firm industry expertise, the company's 9.183 percent of the total addition, the highly leveraged company, accounting for 8.999%, loss of companies accounted for 11.708 percent, the company has listed about 9 years, the international "big four" auditing companies accounted for 7.117%, domestic "seven" audit companies accounted for 25.666 percent.

These results can not yet confirm the quality of industry expertise and audit of the relationship between the real, for two reasons: First, examine only the case of dummy variables industry expertise, industry expertise and did not examine the case of continuous variables. The second is not considered the impact on audit quality other factors, so we need multivariate regression model controlling for other factors, industry expertise and audit was to determine the correlation between the quality.

As can be seen from the table, DAC, TAC's maximum and minimum and the CFO, there was greater than the mean deviation, which is due to sample ST-day China (600,745 the previous year's assets are very small, only 14,772,717.01 yuan, Each variable in the previous year's total assets divided by the value will be larger, eventually leading to DAC, TAC and the CFO to a greater deviation.

(B Multivariate regression analysis
Table 2 shows the multivariate regression results can be seen from the table, when the industry sector expertise variable dummy variables for the industry market share (MS_D), its coefficient is significantly negative, and expected the same symbols and the original hypothesis, indicating that firms industry expertise and audit quality are related.

Six, the conclusions and recommendations
Impact of audit firm industry expertise is an important factor in the quality of this article with a sample of listed companies in 2007-2008, conducted a quality audit firm industry expertise and the correlation between the empirical test. The results showed: on the whole sample, After controlling for other variables, the firm industry expertise and audit quality is positively related.

Therefore, we believe that firms should be encouraged to accelerate the development of industry expertise should continue to strengthen the audit market laws and regulations system, and promote the orderly development of the audit market, and gradually improve the audit market concentration. Encourage more firms use industry expertise differentiation strategy through the industry expertise to make their own audit to obtain advantages of the industry apart from its competitors, improve the quality of audit services.

References:
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