The Study On The Relationship Between The Size Of Accounting Firm And Audit Quality—based On The Theory Of Intellectual Capital

Many people pay attention to the research of audit quality. The study on the relationship between the size of Accounting firm and audit quality is also an important topic which the academic circle studies. In recent years, the domestic scholar was launching the empirical study on the relationship between the size of Accounting firm and audit quality. However, because of the difference between researchers' research variable,sample size and research technique, the relationship between the size of Accounting firm and audit quality is still in controversy. Therefore we have the necessity to deep research the question. The Association of Certified Public Accountant appeal that the Accounting firm grows strong. So it has great significance to research the question.This paper combines with theoretical research and empirical study. The paper is divided into five parts to discuss the relationship between the size of Accounting firm and audit quality. On the basis of the domestic and foreign literature, we discover this angle of research. We study the relevant index of listed companies from 2007 to 2009. We discover the stable scale Accounting firm, using the cluster analysis method. With the principal-agent theory,the economies of scale theory and the intellectual capital theory, we propose the research supposition. Principal-agent theory is the theoretical premise of the whole audit issues. The economies of scale theory is analyzed the size of Accounting firm and the audit quality relevant theory. The intellectual capital theory analyses that with the expansion of audit firm, we must strengthen intellectual capital construction. The supposition one proposes that big audit firms should always show higher audit quality. Contrast to the domestic smaller auditor firms, the supposition two reveals that the audit quality of the international big audit firm and the native big audit firm show higher.This paper measures the size of Accounting firm. Based on the theory of intellectual capital, we use cluster analysis to define the stable size of audit size, with the relevant indicators of listed companies from China's Shanghai and Shenzhen in 2007-2009.They are the international firms and two local firms. We can not directly observe the quality of auditing. It has not a unified and reliable measure. The only way is to seek alternative measure. This paper selects the financial reports of listed companies restated as a substitute variable for audit quality.Empirical part is to test the relationship between audit size and audit quality. In this paper, we research the 2007-2009 date of listed companies, and we audit the occurrence of financial restatements as a substitute variable for the audit quality. Then we build the empirical model. We study the relationship between the size of Accounting firm and audit quality from two areas, that is internal governance and external governance. We use logistic regression analysis and found that: the scale of large are with significant negative restatement of financial reports. That is to say, Audited by the large firms, the probability of restated financial statements of listed companies was significantly lower. Therefore assumption one is verified. The large international and domestic large firms are significant negative with restatement of financial reports. That is to say, Audited by large international and domestic large firms, the probability of restated financial statements of listed companies was significantly lower. Therefore assumption two is verified. The empirical study also found that the chairman has the duty of general manager would undermine the independence of the board. It is the reason of poor quality audit. Listed companies have more independent directors, it plays stronger role of supervisory. And it has higher audit quality.Finally, based on the result of empirical research, we propose constructive suggestions. We believe that China should accelerate the development of large-scale Accounting firm. With the expansion of Accounting firm, they should improve the audit quality. And they should strengthen the building of intellectual capital to enhance the competitiveness of enterprises, and strengthen the building of brand in order to occupy high-quality clients. Listed companies should optimize the internal management structure. Regulatory authorities should strengthen the supervision of financial statement restatement. Finally, the paper also points the lack of empirical research points and future research directions.