Audit Firms Merge, Audit Fees And Audit Quality

Chinese Institute of Certified Public Accountants (CICPA) officially published “On the promotion ofaccounting firms to become bigger and stronger” on13May,2007. Then the third combination took place,promoting by government and market, which has the goal of being larger and stronger. Afterwards, thescale of national accounting firms enlarged obviously, and achieved the strategy of being larger to someextent. But it still has the question of whether the accounting firms could be stronger after consolidation,and we need to confirm the results of it and exam the effectiveness of above strategy, which has importantsense to provide acknowledgeable and practical support to consolidation of national accounting firms.This report reviews related researches globally towards combination of accounting firms, charging feeof auditing, and audit quality in first place, and then provide related research hypotheses to several theories,such as economies of scale, quasi-rent and so on. The research is based on financial information and data ofclient companies of accounting firms, who experienced consolidation from2006to2011. And the results ofresearch indicate the methods and formats of consolidation have the impacts on auditing charge and quality.Empirical analysis has four parts, which first include exam the influence of format and procedure ofaccounting firms’ combination on auditing fee and quality using amendatory Jones Model. And compare allconsolidated accounting firms before and after to figure out the relationship of the action of consolidationand auditing fee and quality.The research reports that,(1) Compare with pre-consolidation, the auditing fee increase dramatically;(2) Auditing quality didn’t improve significantly, and the relationship of auditing fee and auditing qualitybefore and after consolidation doesn’t show positive effect. However, the increasing number of CPA,income and clients does provide strength support to the positive effect of combination. Accounting firmsnow are still keep in quantitative stage, and the qualitative change of auditing quality also needs longertime frame and other factors;(3) Combining accounting firms using method of assimilate has higherauditing quality and lower auditing charge, which compared with new consolidate method;(4) Comparewith limited accounting firms, partnership of accounting firms have higher auditing quality and lowerauditing fee.From the analysis above, it could be seen that accounting firms need to have orderly operating systembefore consolidation, and should have positive attitude towards it. Besides, accounting firms should doenough researching work before combination, and pay more attention on perfect monitor system, qualitycontrol and risk management. Government and other related monitor apartments should try their best toperfect legal institution and provide satisfied external environment by increase marketization process andbuild harmonious compete structure. By this means, CICPA could take best action to make strategy of“being larger and stronger” come true.