The Change Of Audit Quality Before And After CPA Firms' Combination Based On Double Perspectives

CICPA enacted and issued Opinion on Building Bigger and Stronger Public Accounting Firms in May,2006, launching the strategies of building bigger and stronger accounting industry and "Step Out" of Chinese accounting business. Thus the third wave of combination of local public accounting firms has been raised in China.According to present studies, there are not many conclusions of studies on the third combination wave on perspective of time span, and rare scholars have based their studies on change of audit quality before and after combination. Most studies have adopted the empirical way of research to examine results of combination with sample of big quantity. While this paper will try to analyze the change of audit quality from dimensions of both supply and demand through case study of BDO China SHU LUN PAN Certified Public Accountants, to examine the conclusions of present empirical studies and give some enlightment to "bigger and stronger" local public accounts during the development of scale, and further more, to find the right way that fits the development of local public accounting firms in China with real experience.This paper is a case study combining many ways of analysis, like descriptive statistics, inferential statistics and so on. Through different dimensions of supply and demand, this paper will examine change of audit quality before and after the combination of BDO China SHU LUN PAN Public Accountants from the ways of real quality and market perceived quality. After analysis of the seven proxies which are commonly used in present studies to measure audit quality, this paper will come into the following conclusions:Firstly, there are no prominent improvements in either market perceived quality or real quality in BDO China SHU LUN PAN Public Accountants after the 2006 combination.Secondly, marked differences of three pubic accounts in quality control, risk management and business culture before combination, together with integrative defects after, counteracted the expected positive effects of combination. And this is an important reason that real quality was not improved after combination.Thirdly, this paper has not yet come to the conclusion of why market perceived quality was not improved after combination. And this question still needs further probing and researching. The innovation of this paper lies in following points:Firstly, the innovative objective of study of the combination of BDO China SHU LUN PAN Public Accountants in the third combination wave.Secondly, the time span stretches from 2004 to 2008, which means relevant statistics of five years is comprehensively analyzed to examine quality change in a more complete way.Thirdly, the logic frame of this paper adopted "joint probability" of DeAngelo, to examine both market perceived quality and real quality from different positions of supply and demand of audit quality. Apart from that, this paper integrated relevant variables commonly used to measure audit quality in empirical studies, which help build the theoretical frame of this paper in a more complete and systematic way.