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CPA Sanction and Audit Quality
Chien - Heng Jennifer Chang, National Chengchi University
Wen - Jing Chang, National Changhua University of Education
Ling - Tai Lynette Chou, National Chengchi University
Chia - Lee Teng, Pricewaterhouse Coopers
ABSTRACT. This study aims at investigating the appropriateness and effectiveness of CPA sanction system in Taiwan. We hypothesize that (1) if sanctioned auditors show generally lower audit quality, the sanction system is considered appropriate; and (2) if audit quality is improved after the sanction, the system is deemed effective. We use discretionary accruals to surrogate audit quality and examine the empirical data of other public company audit clients of all sanctioned CPAs. The results find that almost half of all sanctioned CPAs show a lower level of audit quality, and amongst them four cases reach significance level. In addition, the audit quality of suspended CPAs is significantly lower than that of their unsanctioned counterparts. To assess the effectiveness of the system, we measure the variation of audit quality before and after the sanction. No evidence is found to support that audit quality improves significantly after CPA sanctions.
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