The Empirical Research Of Relationship Between The Consolidation Of CPA Firms And Audit Quality

Since the end of the 20th century, Chinese Public Accounting Firms have experienced three waves of consolidation. The first occurred in 1998 and 1999, this merger was a merger of the background of Reorganization. The second occurred in 2000 to 2001, the mergers were government-led in response to joining the WTO. Since 2005, the Accounting Firms have conducted voluntary mergers. In the third merger wave, many firms have sought merger target to seize the government policies. Some mergers failed, some combined then divided, some firms merged several times in the short term, some firms who finished the merger occurred failure of the audit or audit scandal.Since 2006, the State Council, Ministry of Finance, the AICPA have issued documents repeatedly to encourage, promote and guide CPA firms to develop stronger and bigger."Chinese Institute of Certified Public Accountants firm on promoting the views of bigger and stronger" emphasized particularly not simply the pursuit of scale, but to attach importance to post-merger integration, to achieve some aspects' substantive integration, such as the strategy, culture, system, organization, quality control aspect. Lively combinations of CPA firms are rational? Then the accounting firm of what this merger is not busy rational, is in the "strong" based on the "bigger", or reimbursing the pursuit of rapid scale it? Is "bigger" on the basis of "stronger", or blind pursuit of rapid expansion of the scale of it?"Becoming bigger" on the basis of the "becoming stronger" means for the professional enhancement of competitiveness at the core of its professional services capabilities, quality control capabilities is the key point rather than the simply pursuit of expansion of scale. The improvement of the quality control capabilities will be the ultimate expression of improvement in the quality of audit services. After the merger of accounting firms that audit quality is a significant difference? Quality of audit f after the merger is higher than the pre-merger? The third wave of consolidation in our country is still in full swing currently, there's a certain practical significance to summarize, analyze the cases of mergers that have occurred.Firstly, the paper reviews the theoretical basis of the combined events and audit quality. From the perspective of large-scale after merging, on the one hand the number of clients rise, the customer's business from a particular reduction in the proportion of total business, the greater the amount of the guarantee quasi-rent, the greater the relative effectiveness of security, on the other hand, non-intellectual capital expands, also increases the legal risks faced, the combined firms have more motivation to ensure the quality of its audit business. From the reputation theory, taking into account the previous investment for "brand" building and scrupling the huge costs of losing reputation, the merged firms have an incentive to provide higher quality audit services. From the synergies of the merger, firms would merge a variety of tangible resources, intangible resources, successful integration will have a "1+1>2 "synergies, business and human resources directly affect the synergies of the audit quality collaboration. We can derive from the theoretical analysis:the combination of CPA firms will have a positive impact on audit quality.This paper uses two indicators which are the audit opinion and the absolute value of manipulation accruals to measure the quality of auditing. Audit quality for A share listed clients of the merged CPA firms who meet this definition of "merger office"(25 into 12) in the year before the merger compare with that in one year after the combination, using compared descriptive statistics and empirical analysis method.Descriptive statistics analysis shows:①Firstly, copies number of Non-standard audit report is prior to the period before merger than the combined. Secondly, only three CPA firms' ratio of non-standard audit opinion is higher than that in the one year before merging. For more than 50% merged firms concerned, the index decline after combination. Moreover, in their non-standard audit reports, the combined samples of firms are more likely made an unqualified opinion with explanation paragraph after the combinations. For the loss of clients, it's more likely to publish non-standard views before the merger.②First, the average of DACC and |DACC| for the merged firm's clients is higher than that before the merger, and similarly the standard deviation of the two index change larger after merger. Second, conducting the "merger office" as the unit, its clients sample were compared DACC and |DACC| paired T test, the conclusions show that:From a statistical point of view, events of CPA firms merger have not produced general significant positive impact on the quality of audit, In DACC significant paired test, only two of the four combined events, that reflect the positive role of audit quality. There are three CPA firms who are significant in paired T tests, but all of the three can't verify that combination have positive effect on audit quality; DACC after the merger are higher than that before the merger for 66% of the sample CPA firms.IN the similar way, the standard difference of |DACC| precede after the merger for more than75% of the sample CPA firms. Generally speaking, before the mergers, "merger offices" issued more non-standard audit opinions, the earnings management of their listed clients was at lower degree, and audit quality was relatively higher, comparing that after the mergers.Empirical results show that:LOGISTIC regression for MODEL 1 results show that the combinations and the audit opinion are significant negative correlated on the 10% level. Multiple linear regression analysis for MODEL2 showed that:CPA Firms mergers have positive impacts on earnings management at the 5% significance level. In contrast with the expectations hypothesis, the two models show that combinations produced a more significant negative impact on the audit quality.Descriptive statistics and empirical analysis are consistent. Instead, the post-merger decline in audit quality. Maybe integration for CPA firms' mergers have processed poorly that caused the decline in the quality audit and the unimproved quality control capabilities. To some extent, the conclusions of this paper confirm that the combinations among Chinese CPA firms strove to "developing big" as primary goal, instead of "developing stronger" as basic premise.