Do CSRC Enforcement Influence over Auditors Improve Audit Quality? Evidence from China

In general, we need a force to supervise and punish the auditors when the audit failures occur in order to ensure the improvement of the audit quality. Based on the enforcement releases issued by the China Securities Regulatory Commission (CSRC), we use the firm-years with sanctioned auditor signature between 2004 and 2010.According to the signature order in the audit report, we separate audit manager from audit reviewer. Then we use empirical evidence to measure the effectiveness of formal sanctions in improving auditors' quality, as well as the differences between audit manager and audit reviewer. The results show that auditors tend to issue more modified audit opinions after the sanction, and the audit quality improve in some degree. In addition, audit manager's change in audit quality becomes more significantly obvious than audit reviewer.