Research On The Influence Of Accounting Firms’ Transformation On Audit Quality

In order to promote the development of large and medium-sized accounting firms using limited liability partnership(hereinafter referred to as “LLP”). Ministry of Finance and the State Administration for Industry and Commerce on July 20, 2010 jointly issued the "on promoting the large and medium-sized Accounting firms adopt the limited liability partnership form of organization of the Interim Provisions"(hereinafter referred to as the "Interim Provisions"), where the third clearly pointed out that "Big Accounting firms should be transform to limited liability partnership on December 31, 2010; also encourage medium-sized accounting firms to complete transform on December 31, 2011 ".Following after the release of the transformation policy, domestic large and mediumsized accounting firms and big four international accounting firms in the world( famous four accounting firms of the big four accounting firms: Pw C, Deloitte, KPMG, Ernst & Young, hereinafter referred to as the "international big four" or "big four") which has securities practice qualification,were successively completed the change of organizational form, from the "restructuring" since the limited liability forms to the limited liability partnership. According to the provisions of the "the People’s Republic of China Partnership Enterprise Law”, the accounting firms use limited liability partnership as its organization, and a partner or several partners due to his willful misconduct or gross negligence cause in practice, shall bear unlimited liability or unlimited joint and several liability for the debts of the partnership, the other partners to his share of property in the partnership enterprise according to limited liability. The transformation policy makes accounting firms faced in the process of practice of legal responsibility from limited liability variable to if intentionally or with gross negligence, it is required to bear unlimited liability, which would increase the legal responsibility that partner in the accounting firm shall bear, so in the process of practice they will pay more attention to maintain the independence and professional, which helps to improve its audit quality.This paper focuses on the influence of accounting firms’ transformation on audit quality, using China’s 2009-2014 listing Corporation annual financial audit report which completed by the accounting firms’ transformation to limited liability partnership as the research object, separate as two events, the accounting firms completion of the actual transformation and the declaration of transformation policy, respectively study their influence to the audit quality, combined with the Difference-in-differences Model(hereinafter referred to as the "DID model") for further research, analysis those two events’ impact on audit quality, finally in order to verify the above results again, use controllable accrued profit as another variable of audit quality, test the robustness of the model.Empirical study found that, the increase of legal liability caused by the transformation of the accounting firms is helpful to improve the independence of the CPA and to improve the audit quality. The year of the transformation policy posted, due to the transformation policy, accounting firms increase the legal responsibility of the audit industry, then increase the systemic risk of the CPA profession, lead to a systemic early warning in all the accounting firms, therefore, in the year of 2010, audit quality has been greatly improved. And accounting firms which completed the actual transformation, make them actually responsible for the higher legal responsibility, in the process of practice, correspondingly improve independence and prudence, which have a significant influence on audit quality. For further research on audit quality improvement whether due to the transformation policy or the actual transformation of the accounting firms, use the DID model for a further research, the study found out that accounting firms actually completed transformation events has more significant improve on audit quality effect. Because there are many indicators to measure the audit quality, In order to verify the conclusions of the previous paper, this paper uses controllable accrued profit as another indicators of audit quality to carry out robust test, and still harvest the same conclusion.The conclusions of this paper is to verify the effect of policy’s declaration and implementation, In order to offer a further improve thinking to the supervision department of accounting firms, and provide the data support and research ideas to the domestic accounting firms. Through this study, hope it’s helpful to find out the transformation policy’s promulgation and implementation’s impact on audit quality, and accordingly put forward the policy suggestions, provide some useful reference for the improvement of audit quality for company, and also enrich the research in related fields.