The Research On The Relationship Between Auditor Size And Audit Quality

Since the rapid development of economic, the scales of Chinese enterprises expandrapidly and the businesses are more complex. The need of audit is also growing. In order toachieve synchronized development with enterprises, Chinese government has alsointroduced a series of policies to promote the development of the accounting firms. In thisbackground, our local accounting firms set off several big scale consolidations. Throughthe mergers, the scales of Chinese accounting firms have been rapidly expanded.Meanwhile, with the introduction of risk-oriented audit model and the push of governmentpolicies, the industry specialization of accounting firms is put on the agenda. To make ouraccounting firms bigger, stronger and international, scale and industry specialization aretwo effective and sustainable strategies for the development of our accounting firms.However, faced with frequent domestic and international financial fraud cases, the publicquestioned the audit quality of accounting firms, especially the accounting firms with largescales. And Chinese CPA industry is facing a severe test. This paper will study therelationship between auditor size and audit quality combined with industry specializationand do some research of the future developing paths for Chinese accounting firms based oncurrent audit market.This paper will review past literatures at home and abroad first. The next step istheoretical analysis and empirical analysis of the relationship between auditor size andaudit quality. In the part of theoretical analysis, we will introduce the connotation ofindustry specialization and then analyze the motivation of developing industryspecialization of the accounting firms based on competitive strategy theory andrisk-oriented audit theory. Then, we will analyze the relationship between auditor size andaudit quality based on the theory of industry specialization.In the part of empirical analysis, we will take descriptive statistics and regression analysis based on the all A-share listedcompanies’ financial data from year2010to2012. The conclusion is: In the group ofaccounting firms with industry specialization, the larger accounting firms are better able tosuppress earnings management behavior, and the audit quality is higher. In the groupwithout industry specialization, there is no relationship between auditor size and auditquality. Finally, several suggestions for future development of Chinese accounting firmsare raised in accordance with the conclusion of theoretical and empirical research.