The economics of auditing in China

This chapter offers an overview of auditing practices in China from the perspective of New Institutional Economics. We follow Douglass North's institutional/cognitive approach to understand auditing as an institution, and our discussion proceeds in four steps. First, we explore the economic and regulatory forces that have driven the evolution of the audit market in China. Second, we discuss the implications of audit market consolidation on audit outcomes. Third, we delve into the role of audit partners and elaborate on how auditor experiences influence auditor judgment, thereby shaping the effectiveness of the auditing institution. Finally, we discuss opportunities for integrating the stakeholder model, new structural economics, informal institutions, and cognitive science into future auditing research.