The Empirical Research On Relationship Between Public Accounting Firms’ Merger And Audit Quality

With the development of China’s capital market, domestic accounting firms have experienced three large-scale mergers so far. In 1998 and 1999 under the support of the Ministry of Finance and China Securities Regulatory Commission the reform of accounting firms caused the first merger. During 2000-2001 in order to meet the improvement of capital market a series of regulations issued by government and CICPA strengthened the threshold of auditing, which prompted the second merger. In 2007 the CICPA issued the "opinions of promoting the development of public accounting firms ", which accelerated the third merger. After the three mergers, local accounting firms extended business scale and the number of employees. However, in 2012 the stock market still appeared a serious financial fraud of Yun Nan Green-Land Biological Technology Co., Ltd and Wanfu Biotechnology Agricultural Development Co., Ltd. The way of merger enhances the scale of accounting firms, whether if it can also improve the audit quality. Therefore it is necessary to research the relationship between audit quality and mergers of public accounting firm.This paper selects data of Chinese A-share non-financial listed companies from 2007 to 2012, which should get rid of ST companies, companies containing B share or H share and omitting data, and uses discretionary accruals of the modified Jones model as substitution variables of audit quality to measure the relationship between audit quality and mergers of public accounting firm. Empirical results show that merger by new establishment cannot significantly improve audit quality and merger by amalgamation can significantly improve the audit quality. Therefore it is more important to mix the enterprise culture and establish the perfect system of internal management rather than just merging formally, which can really improve the audit quality of public accounting firm.