The Effect Of Reform Of Audit Firm Structure On Audit Fees

In order to promote the development of audit firms and go out of our country, the Chinese Ministry of Finance issued a regulation in2010that requires that lager audit firms should be changed to a special partnership (SP) structure by the end of December31,2010and encourages middle audit firms change to a special partnership (SP) structure by the end of December31,2011, which is a ideal place for scholars to do research about how audit market changes pre-to post-regulation periods.After the intruduction of relative backgrounds, first, the paper reviews the economic outcome of structure reform and the research of audit fees respectively. Then, based on the intrudction of system background, risk-return theory, input-output theory and high quality-high price theory, the paper explains the effects of reform of audit firm structure on audit fee. In the end, the paper poses research hypothesis in order to examine how audit fee changes after reformed and in different years. In addition, the paper also includes one robustness tests which is in accordance with the results.Based on the combination of the theoretical and empirical method, this paper uses reformed audit firms in the period of the year2010-2012as the sample and makes multiple regression equation to explore the relationship between the reform of audit firm structure and audit fees. This paper includes six parts:The first part is the introduction:It mainly introduces the background, the significance, the ideas and the methods of the research and the paper framework of this paper.The second part is domestic and foreign literature review:From the domestic and abroad two aspects, this paper brings a literature review of the economic outcome of structure reform and the research of audit fees respectively.The third part is the system background and basic theory:According to the risk-return theory, input-output theory and high quality-high price theory, this paper analyzes the relationship and mechanism between the structure of special ordinary partnership and audit fees to get ready for hypothesis in the next part.The forth part is the research and design:According to the third part of the theoretical basis, this paper proposes hypothesis, sets up independent variables, dependent variables and control variables, and makes definition and detailed measurement of the variables. Then it builds a regression model and explains the origin of data and the choice of samples to get ready for the later empirical test.The fifth part is empirical analysis:It includes descriptive statistics, the correlation analysis and multiple regression analysis; from two aspects of the overall samples, the samples in different years, this paper does the test, gets the empirical results and carries on the analysis to test the validation of assumptions put forward.The sixth part is the empirical results and policy recommendations:Firstly, it summarizes the empirical results; secondly, it puts forward relevant policy suggestions for audit firms’ development and the healthy and well-organized audit market; finally, it expounds the innovation of this paper and places the limitations of this paper and future research direction.This paper finds:In the system of special ordinary partnership, in order to protect self-benefits, auditors will enhance risk awareness, work harder, practice more carefully, perform more substantive tests and collect more audit evidence, which will increase audit cost. In respect of audit firm, reffered to listed companies with higher risk and more complicated business, audit firms will appoint auditors with higher professional competence, make use of experts’ work when in necessary and perform stricter quality control. At the same time, audit firms will train staff to reduce the probability of error and fraud in the audit process. After reformed, audit firms spend more resources, so the firm should also obtain audit premium. And at the same time, audit quality will be enhanced in the process and auditors will require more audit fees, which presents the concept of "high quality, high price" The results show that:audit fees will increase in the system of special ordinary partnership, and the auditor behavior lags behind changes in the environment of law: audit fees will only increase significantly in the second year after reformed. The contribution of this paper reflects in the flowing:From the respect of organization form, the paper tests its influence on audit fees by three routes:law risk, audit quality, audit cost, and comes to the conclusion that audit fees will increase due to the boost of law risk, audit quality and audit cost.This not only enriches the research system of economic consequences of audit firm structure reform and provide a factor of audit pricing model; The paper enlarges the sample size, offering supporting evidences for the researches existing and offsetting the shortcoming of the old data and insufficient sample; In addition, this paper examines whether the increase of audit fees is synchronous with reform of audit firms structure.