2016 International Conference on Power Engineering & Energy, Environment (PEEE 2016) ISBN: 978-1-60595-376-2 Study on the Factors and Measures of Audit Independence for Accounting Firm Taking 30 Accounting Firms in Chengdu for Instance Delang Song 1,a, Fan Wu 2,b,*, Yan Zhou Liu 3,c 1 Institute of Management, Sichuan Agricultural University, Chengdu, Sichuan, China 2 Institute of Management, Southwest University for Nationalities, Chengdu, Sichuan, China 3 Institute of Management, Sichuan Agricultural University, Chengdu, Sichuan, China a 1252008117@qq.com, b 398664230@qq.com, c 1029968478 *Corresponding author Keywords: Accounting Firm; Audit independence; governance structure; Industry regulation Abstract. Since audit independence is essential for audit work and the basic premise for carrying out the audit work, it s also the core of the certified public accountant professional ethics. This article goes through 30 accounting firms in Chengdu, on the basis of questionnaire, interview, in terms of the firms, the audited units and the legal system (industry) to analyze the factors that influence the public accountants audit independence. We found that the size of the firm and strength; the possibility of the audited units of financial fraud; Unsound legal rules (regulatory system) are the main factors affecting the audit independence; ultimately, corresponding countermeasures and proposals are put forward. Research Objects and Research Methods This article took top 100 accounting firms in Sichuan province depending on overall strength in 2014. The document shows that there are 2 large-scale, 20 medium-sized and 78 small firms in whole Sichuan province. According to the list of top 100 accounting firms of all sizes, and personal professional knowledge and ability, we finally randomly chose 1 large-scale, 9 medium-sized and 20 small firms to conduct the investigation.(see table 1).
Table 1. Subjects basic situation table. Public accounting firm name Type In 2014 the business income (ten thousand yuan) The of certified public accountants in 2014 Nobunaga and certified public Chengdu branch office Rui hua certified public accountants (special ordinary partnership) Sichuan branch offices In the Sichuan Fa certified public Sichuan huaqiang certified public Vocation international certified public accountants (special ordinary partnership) Chengdu branch Tian Jian certified public accountants (special ordinary partnership) Sichuan branch offices Lixin certified public accountants co., Ltd. Sichuan branch Sichuan HengLiTai certified public Sichuan Jianke certified public Sichuan Chinese certified public Sichuan nation certified public L 12,745.16 191 M 5,298.00 76 M 4,491.06 95 M 1,553.00 65 M 1,662.88 22 M 1,433.19 53 M 1,191.03 51 M 1,325.73 27 M 1,241.12 32 M 1,128.03 23 S 803.18 23
Sichuan xing good letter certified public Sichuan million yong is diligent certified public Chengdu cuhk certified public Sichuan province jinwei certified public Sichuan built good certified public Sichuan mail tunnels certified public Chengdu sichuan yu joint certified public accountants The sichuan fan certified public Sichuan xing guang certified public Sichuan to the certified public Sichuan HSBC certified public Chengdu sanxin haitong joint certified public accountants Sichuan force for certified public Sichuan's letter certified public Sichuan shun tak certified public S 799.36 25 S 581.26 14 S 529.61 23 S 603.5 9 S 553 24 S 507.23 28 S 570.21 9 S 531.05 15 S 502.28 18 S 519.53 18 S 444.5 21 S 495.25 3 S 336.56 16 S 309.35 31 S 314.4 18
Sichuan Hualian certified public accountants co., Ltd Chengdu ZhongCai pool the certified public accountants co., Ltd A letter certified public accountants co., LTD in Sichuan province Sichuan Dongsheng certified public accountants co., Ltd S 300.88 19 S 348.47 19 S 326 20 S 312.24 9 The average income of the 30 surveyed accounting firms in 2014 was 13.919 million RMB, Nobunaga and certified public accountants co., LTD Chengdu branch office ranked first and the income was 1.274516 hundred million RMB, while Sichuan Hualian certified public accountants co., LTD became the last with only 3.0088 million RMB income that year. We also found that the average of certified public accountants was 33.23 each firm, A letter and certified public accountants co., LTD Chengdu branch office had 191 certified public accountants which contributed to the largest one. Surprisingly, only 3 CPA joined Chengdu Sanxin Haitong, but they created nearly 4.9525 million RMB! According to our research, each CPA made 418,800 income, which was representative all over the country. Analysis of the Influence Factors of Certified Public Accountants Audit Independence We analyze certified public accountants audit independence in terms of the firms, the audited units and the legal system (industry). 2.1 Based on the influence factors of certified public accountants Table 3. Factors score statistics based on certified public accountants Angle. 1score 2score 3score 4score 5score Influence factor aver age The size of the firm itself and strength 0 1 3.33 4 13.33 15 50.00 10 33.33 4.13 Contingent fees 0 0 11 36.67 16 53.33 3 10.00 3.73 Firm and the audited units close social ties 0 3 10.00 13 43.33 11 36.67 3 10.00 3.43
Income growing dependence on a particular client 0 4 13.33 14 46.67 10 33.33 2 6.67 3.33 With the audited units there are economic interests 0 6 20.00 13 43.33 9 30.00 2 6.67 3.23 Continuous audit of the term (a customer) 2 6.67 4 13.33 12 40.00 12 40.00 0 3.13 The proportion of other authentication business 0 12 40.00 8 26.67 7 23.33 3 10.00 3.03 CPA's professional competence and professional ethics 0 12 40.00 11 36.67 6 20.00 1 3.33 2.87 The implementation of the system of quality control check 6 20.00 17 56.67 4 13.33 2 6.67 1 3.33 2.17 The organization form of firm 5 16.67 19 63.33 6 20.00 0 0 2.03 According to table 3, generally speaking, the above factors all affected the audit independence to different degree, but the most important factors are as followed: firm's size and strength, charge pressure, CPA s close relationship with audited entity and dependence on some particular client. 2.2 The size of the firm itself and strength The survey shows that there are 25 certified public accountants got more than four points in the evaluation, accounting for 83.33 of the total respondents. Including 10 firms chose 5 points, which accounts for 33.33, there are also 15 chose 4 points which occupies another 50.00, the average score reaches up to 4.13 points, it suggests that the way to improve the audit independence is to develop its own scale and professional capacity. 2.3 Contingent fees According to the survey, there are 19 firms got over 4 marks, taking up approximately 63.33, 16 firms are graded 4 points, accounting for about 53.33, and there are 3 firms have 5 scores which takes up 10.00. In the meanwhile, there are 11firms got only 3 points, and it accounted for about 36.67, the ranked second with the average score at 3.73, it shows that the contingent fees will have a great influence on audit independence. 2.4 The social factors about close relationship between firms and audited units Survey, a total of 14 certified public accountants to influence factor score above 4 points, accounted for about 46.67, of which four points, for a total of 11 score accounted for about 36.67, there are three score of 5, 10.00, and for 13 score 3 points, accounts for larger proportion,
is up to 43.33 of the total respondents, comprehensive above factors, the average score of 3.43, it can also be in a large extent affect the audit independence, in real life can also understand, because with the audited units close social relationships tend to be firm to undertake the main way of business, in order to maintain close social relationship with the audited units, because of the show, even if the audited units make unreasonable demands, certified public accountants may also be because of the safeguard their own interests, which directly result in without any measures reducing audit risk to an acceptable low level, so that inappropriate auditing reports issued by certified public accountants, and in a large extent affect the independence of the audit. 2.5 Income is excessively dependent on a particular client Income overly dependent on a particular client factors, a total of 26 certified public accountants score above three points, there are two score of 5, 6.67, and there are 10 score of 4 points, 33.33, and nearly half of the firm (14, accounting for more than 46.67) score of 3 points, integrated the above situation, the average score of 3.33 points. Efforts to explain the impact on auditor independence is bigger also, the firm's main source of income is a customer, when the audited units inappropriate request, accounting firms will also consider its impact on their own interests, so that there are no any measures can reducing audit risk to an acceptable low levels, may ultimately be issued by inappropriate audit opinion. Directly or indirectly with the audited units of economic interests, continuous audit tenure, the proportion of other authentication business, CPA's professional competence and professional ethics, accounting firm quality control review system, the implementation of the firm's organizational form to different extent factors also affect the audit independence. Improve the Countermeasures of Certified Public Accountants Audit Independence Certified public accountants audit independence from office, the audited units and the influence of the legal system (industry) Mainly from the three aspects puts forward countermeasures to improve the audit independence here. 3.1 The countermeasures of the public accounting firm 3.1.1 To enhance the compressive capacity and words power The strength and scale of public accounting firms are the primary factors that affect the audit independence. Once they make it big, they will have the confidence to reject clients inappropriate request so that the audit independence can be guaranteed. 3.1.2 To improve the way of charge Reforming the current way of charge will benefit the owners equity, which helps to build a truly independent, professional and third-party intermediary age. The results show that the improvement way of certified public accountants audit charge have an average of 3.93 points, and there are 20 firms give four points, taking up 66.67, other4 firms score 5 points, accounting for 13.33.It suggests that improving the way of certified public accountants audit charge will also help improving the independence of audit. 3.2 The measures for audited units 3.2.1 Improve the financial transpare During the investigation, there are 22 certified public accountants give 4 points and above, accounting for 73.33. Including 19 score 4 points, taking up about 63.33, and 3 firms give 5 marks, accounting for 10.00. The remaining eight firms grade 3, there aren t any firms give 3 or
below, the average score is 3.83, which suggest that firms usually believed that management with good faith and improvement on financial transpare will do good to audit independence. 3.2.2 Separation of ownership and management rights The survey shows that 28 certified public accountants give the 3 points and above, including 19 scores 3 points, accounting for 63.33, 7 firms give 4 points, taking up for 23.33, 2 firms give 5 points, which occupies 6.67. The average score is 3.30, which shows its important role in the process of improving the audit independence. 3.3 Based on legal system and regulatory measures 3.3.1 Improve professional law and regulate market order We find that all 30 firm give 4 marks to this section, including 16 got 4 scores, which accounted for 53.33, other 14 have 5 points, taking up for 46.67, whose average score is 4.47.In China, there aren t many regulations on auditing in China nowadays, we lack corresponding law and effective executive regulation. Even if it was found out, the penalties are not strict enough, so that it will to have any warning effect. We learn from the survey that, the accounting firms generally anticipate the authorities to carry out relevant regulation, to strengthen industry self-discipline and improve the legal system and regulations, to standardize market order, increase the intensity ofenforcement and punishment, so that the audit independence can be improved. 3.3.2 Establish and implement CPA credit file system The survey suggests that all certified public accountants score over 3 points, more than 56.67 of the firms have 4 marks, including 12 certified public accountants got 4 points, accounting for 40.00, 5 firms got the score of 5, taking up about 16.67, the average score of 3.78. Because there aren t many papers put forward such measures currently, so this mew method can be scored top 3. The suggestion is useful, however it may be difficult in the process of execution. It needs the help of state institutions or agencies to fully carry out the top design and implementation. Therefore, it may have certain regulations on CPA credit file, so that CPAs will weigh the pros and cons carefully to guarantee the independence of the audit. References [1] AICPA.1986.Restructuring Professional Standards to Achieve Professional Excellence in a Changing Environment.New York:AICPA. [2] Herron.T.L.and D.L.Giltson.2004.Ethical Principles Vs.Ethical Rules:the Moderating Effect of Moral Development on Audit Independence Judgments,Business Ethics Quarterly(3):499-523. [3] Craig,J.L.1997.Preserving Auditor Independence:An Interview with Michael Sutton, Chief Accountant of the SEC,The CPA Journal 67(12): 16-22. [4] Hui-chen wang, zong-wu jia. CPA expansion of non-audit services affects auditor independence factor analysis [J]. Journal of accounting of the friends of 2011.2:65-66. [5] Zhu Yun. The influential factors of the CPA audit independence and countermeasures [J]. Journal of Oriental culture. 2010.8:56. [6] Zhang, juan-juan tang. The influence factors of certified public accountants audit fee on audit independence analysis [J]. Journal of business accounting, 2012 (12) : 40 and 41.
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