Empirical Study Of The Effect Of Auditor Size On Audit Quality

Audit quality is the soul of carrying out audit services by certified public accountants and is the cornerstone of the survival and development of the public accounting firm. In western audit market, the big four has been the providers of the high audit quality service. However, in recent years, the performance of the big four is not very good in the domestic and international capital market. The big four has been involved in some financial fraud cases and it inevitably leads to the audit failure. However, the audit failure cases do not in great degree affect the high brand reputation of the big four in Chinese audit market. Since the big four enters the Chinese audit market, it has been praised by the Chinese listed companies and investors. But it brings strong competitive stress to the local accounting firms in China. Facing with the competition of the big four, the local accounting firms in China generally adopt bigger and stronger strategy, and hope that they can achieve the goal of improving the audit quality through scale management. In this context, it is vital to study the influence of auditor size to audit quality.The paper theoretically analyzes the relationship between auditor size and audit quality. In this guidance, from the angle of accounting conservatism, this paper uses the Ball and Shivakumar (2005) model to test the public accounting firms’audit quality of different size. The results of the study show that it has no difference in audit quality between different size public accounting firms, and the auditor size can not affect the audit quality. According to the research, this paper suggests that:firstly, domestic investors should correctly understand the audit quality of the big four, and we should reduce and avoid the blind worship of the big four; secondly, after enlarging its size, the local accounting firms in China should be integrate the internal resources and improve the management level so as to really improve the audit quality; thirdly, we should perfect the relevant legal system as soon as possible and increase the public accounting firms’ legal responsibility. The limitation of this paper is that we do not have reasonable basis to divide the auditor size and we measure the audit quality indirectly, etc.