Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
The Impact of a Risk-oriented Audit System
on the Chinese Audit Market
Changluan Fua, Sophie X. Kongb* and Lili Xuc
Abstract
We investigate the impact of a risk-oriented audit system, installed in China
since 2006, on the overall Chinese audit market. Using discretionary accruals
as a proxy for audit quality, we examine whether the overall audit market has
experienced any significant change in audit quality. In addition, we also divide
the audit market based on audit firm size to verify whether any potential change
in audit quality is related to the size of an audit firm. Our primary findings are
that audit quality in the overall audit market actually decreases as a result of
installing the risk-oriented audit system. Among audit firms of different sizes, the
‘Big 4’ and ‘Big 10 Domestic’ experience no significant change in their audit
quality while significant decrease is detected for the ‘Others’, i.e. small- and
medium-sized domestic audit firms.
Key words: risk-oriented audit mode, audit quality, Chinese audit market
___________
a: Associate Professor of Accounting, School of International Business Administration, Zhejiang
International Studies University, No.140 Wenshan Road, Hangzhou, Zhejiang, PRC,
changluanfu@hotmail.com
b: Contact author, Associate Professor of Finance, Department of Finance & Marketing, Western
Washington University, Bellingham WA, sophie.kong@wwu.edu
c: KPMG Advisory (Hangzhou) Limited, surexulili@sina.com