The Relationship between Three-level Review System and Audit Quality: Empirical Evidence from China

• 발행기관: 한국유통과학회
• 저자명: Kai TANG Sibei YAN Khee Su BAE
• 간행물 정보: 『The Journal of Asian Finance, Economics and Business(JAFEB)』The Journal of Asian Finance, Economics, and Business Vol. 9 No.5, 135~145쪽, 전체 11쪽
• 주제분류: 경제경영 > 경제학
• 파일형태: PDF
• 발행일자: 2022.05.30

영문 초록

To improve audit quality, certain Chinese auditing firms have added a third-level review by an additional signing auditor to the general evaluation by a signing auditor team consisting of an engagement auditor and a partner. Nonetheless, our research-based on 36,033 firmyear observations from 2004 to 2019 reveals that compared to the general review system, auditor teams under the three-level review system are less likely to issue modified audit opinions when abnormal financial conditions arise. This finding suggests that, while larger auditor teams’ knowledge, experience, and information advantages can theoretically sharpen their judgment, their performance is more susceptible to interference from divergent opinions, the diffusion of responsibility, and lower energy invested by individual auditors, ultimately impairing their judgment regarding the audited enterprises’ abnormal financial conditions. That is, the three-level review system, which aims to improve audit quality, actually worsens audit quality. This conclusion remains valid after the problems of heteroscedasticity and endogeneity are addressed by using firm-level cluster robust standard errors and two-stage regression. We hope that our research will draw the attention of auditing firms, prompting them to reconsider the rationality of the three-level review system.

목차

1. Introduction

2. Literature Review and Hypothesis Development

3. Research Methods

4. Empirical Results

5. Further Analysis

6. Conclusion and Limitations

References

키워드

Three-level Review System General Review System Modified Audit Opinions Audit Quality