| The CPA system was reconstructed in December1980. By2013, the domestic large and medium-sized firms have changed their forms from the limited liability company (LLC) to the special partnership (SP) structure. The CPA system has been developed for more than30years in our country. During the30years, China has gained many great achievements. However, The CPA system still has many disadvantages in the market economy. First of all, the audit quality of the CPA certificate is not high enough. Secondly, the CPA system not only has a low social credibility, but also has a low risk bearing capacity. Besides, scale management level of CPA needs to be improved. Therefore, the relevant departments of the state published a series of policies in order to promote the domestic large and medium-sized firms to become bigger and stronger since2010.More than40Certified Public Accountants firms which have the securities qualification all across the country have been changed their forms to SP, and have obtained a corresponding qualification by December31,2013.This marks the firm system policy has achieved initial success.Transition from LLP to SP is a major transformation in the organizational form of audit firms. According to the provisions of the relevant laws and regulations of our country, for the partners, transformation of audit firms means the change of auditor legal liability. The transformation will increase the legal liability of Auditors. As professional intermediary service agencies, audit firms need to do the following two points. On one hand, partners need to control the risk in practice, must guarantee the quality of practice, and be responsible for their own practice of audit failure. On the other hand, accounting firms are in the social management system. Their practice has a relationship with the public interests. They must accept the supervision of society, management themselves, improve the quality of audit and ensure capital market run effectively healthily. Therefore the internal governance and audit quality of CPA firms are widely concerned. Then after the restructuring of the audit firms, how will the auditors change its behavior patterns? Whether will they improve the quality of audit by themselves, or will they charge a higher risk premium in response to the higher legal responsibility? Whether the firm system policy will affect firm behavior patterns or put a "booster" into Chinese capital market? In the process ofprompting accounting firms to become bigger, will they become really strong? All of above issues are commonly concerned.This paper attempts to empirically test the economic consequence of office system policy and, to a certain extent, answer those above questions.Among of these policies, the firm system policy which is jointly published by The Chinese Ministry of Finance(MOF) and other relevant departments is most important and it helps domestic large accounting firm organization change their forms. Its full name is "Interim Provisions on promoting large scale accounting firms and adopting special general partnership." And this measure was a very important one of internal governance mechanisms regulate firm in the "Twelfth Five Year Plan". It will also drive an audit firm change its organization from LLP toSP.Based onThe Ministry of Finance’s "on the promotion of large and medium-sized firms adopting special general partnership", this paper has done a lot of research to find out whether the audit quality and audit pricing will improve after the change of the organization form the increasing legal liability of auditors.Research findings are as follows:Firstly, audit pricing is significantly improved. At the same time, the extent of audit clients’earnings management is significantly decreased. That means the audit quality has been significantly improved. However,systemic factors may affect the conclusion of the study. Therefore, audit pricing and the improving of audit quality cannot be directly attributed to the firms to transform policy.Secondly, the paper fatherly tests the impact of firm system policy on auditor behavior patterns through DID model controlling the systemic factors. The results are as follows:on one hand, some system factors do exist, which make the audit pricing and audit quality rise year by year. Therefore, further research is needed. On the other hand, the policy has not promoted the auditor to provide higher audit quality or charge more from the company as common expected. Thirdly, this paper does more researches on the first batch and the second batch of the accounting firms which have transformed. The purpose of these researches is to test whether the transform policy will subsequently influence the auditor’s behavior pattern. The results are as follows:First of all, the accountant system policy does not have a significant influence to the accounting firms in the next two years. Not the same as expected, audit fees is increased and the audit quality is improved a lot. There is no evidence to show any influence.Fourthly, because of the audit quality is often not directly observed, and it can only be observedthrough some proxy variables. Therefore, the type of audit opinion is as a proxy for audit quality to investigate the effects of the policy on audit opinion. Similarly, there is no evidence to show that the policy will affect the type of the auditors’ opinion and the audit quality.To sum up, through the empirical test, this paper finds that although the auditors face more legal liability after the transformation of audit firms, there is no evidence to show that the policy will affect the type of the auditors’opinion and the audit quality. This may be related to the legal environment and industry characteristics of current audit market.The main contributions of the paper are as follows. First, an empirical test of this system policy brings the economic consequences, and puts forward policy suggestions. The discovery will be important reference for policy makers and accounting firms. Second, the paper will enrich the documents on the increased effect of auditor’s legal liability and auditor’s behavior pattern. Third, the paper will fatherly enrich the documents related to the current audit market industry characteristics. |
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