An Empirical Investigation of Voluntary Auditing:Cause and Consequence

One of the earliest steps in recognition of auditing as an institutional arrangement occurred in England with the passage of the Company Act of 1862,and another one occurred in US with the enacting of Federal Securities Law.However,according to Watts and Zimmerman(1983),the appearance of audits is more recent and is more nongovernmental. Then,what causes voluntary audit to occur? What drives corporate to voluntarily be audited? And how can voluntary audit influence accounting information disclosure.These questions are not unimportant but unnoticed.We use interim reports of China listed companies to investigate the incentives and consequences of voluntary audit. We find that ownership structure and corporate board are all related to incentives of voluntary audit.Specifically,large shareholder ownership is U-shape correlated with interim reports audit;firms with shareholder mutual-restriction are less likely to have interim reports audited due to the collusion of large shareholders;if the board has relatively more independent directors,the firm is more inclined to voluntarily audit;finally,firms with a modest size board are more engaged in voluntary audit.For the economic consequence,voluntary auditing of interim reports reduces the level of firm's earning management and generates higher ERC.