Effects Of Reform Of Audit Firm Structure On Auditor’s Quality

Auditor firms are as a special type of enterprise, whose structure should adapt to the developing of the economy and dedicate to the stability of the auditing profession. In the20s of the last century, Britain and the United States in order to maximize the conservative no-fault partners in the process of auditing, encourage the organization form of accounting firm with limited liability partnerships, the vigorous development of Anglo-American auditing industry. Since1997in China, the accounting firm and gradually linked units decoupling, the audit industry got rapid growth. Into the21st century, with the great changes of China’s economic environment, international cooperation is becoming more and more frequently, the organization form of existing auditing profession has been unable to meet the local accounting firms’goal about becoming bigger and stronger. To this end, in2010, the ministry of finance, and the state administration formulated the "the interim provisions about promoting large and medium-sized public accounting firms with a special partnership structure " which has introduced a special ordinary partnership organization form for the domestic audit firms, in order to promote the further development of the auditing profession.Audit quality is the cornerstone of the auditing profession survival, and is the goal of certified public accountants unremitting pursuit. Accounting firm into a special ordinary partnership, not only can make the headquarters and branch more concerted effort to strive for a common goal, but also can define the auditor’s legal liability clearly and strengthen legal risk consciousness of the practice partner. This to a certain extent, will affect the audit quality of CPA industry. Therefore, this article will conduct a comprehensive inspection about the effects of auditor firms transferring into a special ordinary partnership on audit quality.This article adopts the method of combining normative research and empirical research to explore the reform of auditor firm structure in China and to study whether this reform can promote the quality of the development of the auditing profession. In theory, this article uses the enterprise property rights theory and game theory, deeply analyzes the effect of local accounting firm organization form into a special ordinary partnership on audit quality. On the empirical test, this paper uses the listed companies’earnings management degree as a measure of audit quality. By investigating the auditor firms’change of earnings management degree before and after the conversion of the structure and by comparing the transferred auditor firms to the not transferred firms, this article research the conversion of special ordinary partnership’s impact on audit quality, the results show that the domestic accounting firms in our country for the conversion of special ordinary partnership, not only make the firm’s audit quality larger than before, but also decrease the degree of other auditor firms obviously. At the same time, the study also found that2010of the conversion of the three public accounting firms’audit quality has improved significantly, but,2011of the conversion of the six auditor firms’audit quality level is not significant enough. This may be related to firm organization transformation is still very short on time. Believe that as time goes on, our country accounting firm into a special ordinary partnership to improve the audit quality and obvious effect will be more marked.Since July1,2010, ministry of finance and the state administration enforced the "interim provisions", the special ordinary partnership, as a new type of enterprise organization form, whether it can bring large firm’s audit quality change, this article tests two aspects of the research in the field based on the theoretical and empirical methods. In a word it has made the following two contributions:Firstly, provision of special ordinary partnership system in China mainly refers to Anglo-American limited partnership, which is a kind of progress of enterprise organization form. But the theory foundation is not solid, even very lack. This article use the enterprise property rights theory and game theory to analysis the effects of special partnership structure on audit quality. This article enriches the relevant field of study.Secondly, because the special ordinary partnership structure is a new organizational form, and audit firms’transferring needs a period of time. The relevant data is not very perfect, so it is lack in empirical research of this field. In this article, we will conduct the empirical analysis through the use of nearly four years of data to explore in depth. It is the first time to inspect the relations of the reform of the audit firms’ structure and the audit quality by analyzing the data from2009to2012.