Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/15627
Title: Client importance, institutional improvements, and audit quality in China : an office and individual auditor level analysis
Authors: Chen, S
Sun, SYJ 
Wu, D
Keywords: Audit quality
Audit-reporting decision
Client importance
Litigation
Issue Date: 2010
Publisher: American Accounting Association
Source: Accounting review, 2010, v. 85, no. 1, p. 127-158 How to cite?
Journal: Accounting review 
Abstract: Abstract This study examines how the legal and regulatory changes in China affect the relationship between client economic importance and audit quality. At the individual auditor level, we find that the propensity to issue modified audit opinions (MAOs) is negatively correlated with client importance from 1995 to 2000. However, from 2001 to 2004, when the institutional environment became more investor-friendly, the propensity to issue MAOs is positively associated with client importance. These findings are corroborated by an analysis of regulatory sanctions. Although client importance measured at the office level is also negatively related to the propensity for MAOs from 1995 to 2000 without controlling for the auditor-level client importance, this result is sensitive to model specification and sample composition. Our results suggest that (1) institutional improvements prompt auditors to prioritize the costs of compromising quality over the economic benefits gained from important clients; and (2) the impact of client importance on audit decisions appears to be different at the individual auditor and office levels.
URI: http://hdl.handle.net/10397/15627
ISSN: 0001-4826
EISSN: 1558-7967
DOI: 10.2308/accr.2010.85.1.127
Appears in Collections:Journal/Magazine Article

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