Auditor Reputation, Auditor Merger, And Audit Pricing

In November2009, the Ministry of Finance and the China Securities Regulatory Commission jointly issued the notice of the pilot work plan of the accounting firm engaging in the audit business of H-shares, that means the audit market of H-share opens to the China’s local accounting firms and brings new opportunities for the development of the local accounting firms. But not all of the local accounting firm can get this chance, the pilot work plan specifies some basic requirements that must be met by the local auditors who apply for participating in the pilot work, such as the annual total income not less than3million RMB, the annual audit income not less than2million RMB, the annual securities business income at least0.5million RMB and so on. In order to achieve these basic indicators, local auditors have merged with each other to snatch H-shares auditing qualifications. As a result, this paper combined with the special system background of admission in H-share audit market, in the condition of the purpose of auditor merger is to get the H-share audit qualification, we attempt to test auditor merger’s influence on audit fees and whether auditor can get the H-share audit qualification to impact on audit fees.This article firstly use standardized research, after reviewing the domestic and foreign literature about the reputation of auditor, the size of auditor and auditor merger’s effect on audit fess and acquiring the related background about the change of audit institution in H-share audit market and auditor merger waves in our country and auditor merger waves based on admission in H-Share Market, we use the relative bargaining power, the insurance hypothesis and reputation theory building the theoretical framework, then put forward research hypothesis.Then, we select the merged accounting firms that apply for H-share audit qualification in2009as the research object and select both before and after the merger audited by the merged accounting firms’main board listed company as the research sample. We define2008as the year before merger, and2010,2011as the year after merger. Using cross section audit fee model and difference-in-difference model, respectively from the angle of the vertical and horizontal, examines the accounting firm merger’s influence on audit fees. Using cross section audit fee model tests whether obtain the H-share audit qualification’s impact on audit fees. Before the multiple regression analysis, we make the T test by comparing the differences of continuous variables and the change amplitude of the continuous variables during the years before and after the merger, and then comparing the differences of continuous variables between auditors that obtain H-share audit qualification and auditors that don’t obtain H-share audit qualification.Through theoretical analysis and empirical test, this paper draw the following conclusions:(1) From the vertical perspective, the accounting firm’s name audit fees have been significantly improved. Actual audit fees also have been improved, but not significantly in statistics. From the horizontal perspective, the increase amplitude of the merged auditors’audit fees is significantly higher than non-merged auditors’. Therefore, this paper argues that auditor merger has significant positive effects on audit fees.(2) The audit fees of merged auditors that obtain H-share audit qualification is significantly higher than that don’t obtain H-share audit qualification, which shows that auditor’s reputation has a significant positive relation with audit fees.The innovation of this article lies mainly in combining the audit admission of H-share market with auditor merger, considering the motivation of auditor merger, from a new perspective to explore the determination of audit fees. In addition, based on previous research which use cross section model, we also refers to some studies made by foreign researchers and use difference-in-difference model, so as to realize the innovation of research method.Due to the research level and time limitation, there are still some limitations in this article. Studying the economic consequences of auditor merger in audit admission of H-share market this special background, leads to fewer auditor merger case and fewer samples selected, and the study period is relatively short, which may influence the result in some extent.