Relaxation of Access Regulations for Securities Audit and Audit Quality : Evidence from the Implementation of China's New Securities Law

Zhang, Lu and Sophee Sulong, Balia (2024) Relaxation of Access Regulations for Securities Audit and Audit Quality : Evidence from the Implementation of China's New Securities Law. INTERNATIONAL JOURNAL OF ACADEMIC RESEARCH IN ACCOUNTING, FINANCE & MANAGEMENT SCIENCES, 14 (1). pp. 516-530. ISSN 2225-8329

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Abstract

Ensuring high-quality audits is essential for preserving the professional reputation of auditors and safeguarding the stability and health of capital markets. Researchers have explored various factors influencing audit quality from diverse perspectives. In 2020, China introduced the New Securities Law, transitioning the securities service operations for audit firms from a pre-approval system to a post-event filing system aiming to foster a more open and competitive auditing environment. Its impact on audit quality has been a pressing concern for regulators and investors alike. Employing a quantitative analysis, this research utilizes panel data from A-share companies listed on the Shanghai and Shenzhen stock exchanges from 2016 to 2022 in China. The observations were analysed using the Ordinary Least Squares regression and the Difference-In-Difference model to investigate the effects of the New Securities Law on audit quality. The regression analysis demonstrates a positive relationship between the implementation of the New Securities Law and the enhancement of audit quality, even after adjusting for firm-fixed and time-fixed effects. The results reveal that the introduction of the New Securities Law has significantly improved audit quality in China's securities market. The findings underscore the effectiveness of regulatory reforms in enhancing audit quality, contributing valuable insights to the discourse on optimizing audit market regulation. Given the distinctive characteristics of China's securities market and its ongoing integration into the global financial system, further research is proposed to explore the long-term effects of the New Securities Law on audit quality and to examine the mechanisms through which policy changes influence auditing practices.

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