Study On Firm Merger’s Influence On Audit Quality

Audit quality is the core of the audit work. It builds the brand of a firm and has a significant and long-term influence on the reputation of the audit industry. It determines whether the firm industry can have a healthy development or not. It is fair to say that the audit quality is not only the basis of the firm’s existence, but also the lifeline of the whole industry. The essence of "becoming bigger and stronger" is not large scale of quantitative changes, but the improvement of the business quality. In this Chinese characteristic system, it is worthwhile to make an in-depth research on whether the merger between firms can improve the audit quality.After the reconstruction of the industry of certified public accountants, this industry has experienced the firm merger wave three times. The first wave came after the decoupling and restructuring in 1998. The purpose of this merger is to enhance the overall competitiveness of the firms. The second wave came after 2000.With the issue and implementation of the relevant laws and regulations, the development of the industry is gradually standardized. Corresponding procedures for assessment and approval of merging firms or setting up new branches are established. The threshold for firms to get the securities and financial audit qualification has become higher and higher. To comply with all the policies and requirements, the firm sembraced a new round of consolidation. Chinese Institute of Certified Public Accountants promulgated the file of “Advice on Making Accounting Firms Bigger and Stronger”. It was put forward in the file that “combining firms on the basis of laws, free will and negotiations should be encouraged and supported”, which directly promoted a new wave of merging firms in the Chinese certified public accountants industry.Besides, in July 2009 the General Office of the State Council forwarded the file of “Several Opinions on Accelerating the Development of the Certified Public Accountants Industry” issued by the Ministry of Finance and the file of “Pilot Work Plan of Accounting Firms Engaging in Audit Business of H Share Companies” issued jointly by China Securities Regulatory Commission and the Ministry of Finance. The clear instructions on the prerequisites for the accounting firms to work on the audit business of H share companies further advance the rapid development of the merging trend.In the light of the theoretical analysis, firm merger can not only improve its ability to be independent, but also improve the professional competence of the auditors and the audit quality. It can be embodied in the following aspects:(1) In the light of the scale effect. Large firms can provide more training courses to offer specific counseling to employees. It ensures that the employees have the necessary qualities and the ability to do the job.(2) In order to protect their reputation, big firms have greater initiative to keep their independence in the process of audit. Therefore, when the professional skills of two firms are the same, the bigger one can provide better audit service.(3) In the light of the "deep pocket" theory analysis, the larger the firm is, the more assets it has, the bigger the amount of the damages required by the lawsuit is. To avoid the litigation compensation caused by the audit failure, accounting firms need to keep their audit quality higher.This dissertation takes the angle of third merger wave and uses the combination of Tianjian Oriental Accounting Firm and Kaiyuan Faith Accounting Firm as an example. After the merger, what changes have taken place on the enterprise audit fees? Is the phenomenon of audit delay relieved or worsened? This dissertation selects all the A share public companies audited by Tianjian Oriental Accounting Firm in Shanghai and Shenzhen in 2006-2013 before the merger as samples. All the data, concerning the listed companies that failed to disclose the annual audit reports and the ones that needed to do additional audit or double audit but were not disclosed in public, are filtered out in the research.According to the research analysis,the following conclusions are drawn:(1) In the view of the audit delay, the author has the following findings through a study on the phenomena of audit delay of Tianjian Oriental Accounting Firm before and after the merger: There is no decrease in the amount of audit delay after the firm merger. This suggests that the accounting firm merger was not able to diminish the frequency of audit delay and improve the efficiency of audit as expected. At least in the early phase of the merger, this kind of effect is not obvious. Maybe after a consolidation period, the effect on audit delay can be clear.(2) From the perspective of the audit fees, the audit premium level of Tianjian Oriental Accounting Firm has been improved gradually after the combination. The average audit fees in 2013 increased by nearly 400000 compared with that in 2006. Moreover, even in the same year it was merged, the audit fees were increased to some extent.