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Journal of Management and Business Research, 2002
19（ 1 ）：109-145
DOI： |
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| CPAs' Licensing Requirement, Legal Liability, and the Audit Market |
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This research uses analytical method to study the effects of the change in CPAs' licensure requirement and legal responsibility on the audit market. Results indicate that, as we elevate the minimum requirement for CPA licensing when holding constant the legal liability system, in equilibrium the audit fee will increase, net benefits to the audit clients will decline, individual CPA's audit quality will rise, whereas the average audit quality in the market may not increase since the market participants are different under the new system. On the other hand, if we change the legal liability regime from unlimited to limited liability while holding constant the minimum requirement for CPA licensing, the model predicts that the audit fee will decrease, net benefits to the clients will increase, the average audit quality in the market may not necessarily decline as one might expect, since some less wealthy CPAs wil I be replaced by the richer ones who could offer higher audit quality. Finally, if both the legal liability regime and licensing requirement are shifted, then how the average audit quality and net benefit to the clients are going to change in general will depend on the strength of the two forces and will ultimately be determined by the parameters in the model, which is an empirical question.
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| Audit market regulation, Licensing requirement, Auditor liability |
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