Audit Firm Size, Audit Firm Tenure And Audit Quality

In the beginning of this century, Large listed companies’ financial fraud in domestic and foreign affect the audit profession’s reputation, and the quality of the audit report was suspected, Therefore, regulatory agencies in domestic and foreign in order to improve audit quality all take auditor rotation system. But many scholars believe that the auditor belongs audit firm, the ability of auditor issue an audit opinion independently is reduced because the audit firm’s interference, so the substantive role of auditor rotation system to improve audit quality is questionable in Chinese audit market, some scholars recommend implement rotation of audit firm after empirical research. As we all know that Chinese audit market started late, although developed in decades, but there are still a lot of space to improvement, Especially in the information age of market economy more developed, and the information technology’s development is rapidly, add more problems to the audit firm, and Put forward higher requirements to audit quality, so study whether the audit firm rotation can improve audit quality has great theoretical and practical significance. Through reading and analysis of existing literature and found that the main conclusion is auditor tenure have positive or negative affect to audit quality, and many study didn’t distinguish audit firm tenure with auditor tenure in detail, and sometimes they are use tenure Instead audit firm tenure and auditor tenure. In order to improve audit quality, Formulate targeted regulatory policy for the relevant departments; this paper argues that it is necessary to explore the relationship between audit firm tenure and audit quality in the Chinese stock market.In this paper, we take A-share listed companies in Shanghai and Shenzhen from 2008 to 2013 as samples, and use the modified Jones model to measure the Discretionary Accruals, to discuss the relationship between audit firm tenure with audit quality and exploring whether and how the accounting firm influences the relationship. The results show:(1) On the whole, The audit firm tenure with the absolute value of discretionary accruals is a U-shaped relationship; then make the audit firm tenure is subdivided into the long- term tenure, the middle-term tenure and short-term tenure to research and found that when the audit firm tenure is too short or too long, the audit quality are low, when the audit firm tenure close to 7, the absolute value of discretionary accruals is lowest, audit quality is highest. In order to make the results more reliable, this article broken down the absolute value of discretionary accruals into positive and negative discretionary accruals, and research found that the audit firm tenure with positive discretionary accruals is a U-shaped relationship, with negative discretionary accruals is inverted U-shaped relationship.(2) This study also found that the audit firm size have an impact on the relationship between audit firm tenure with audit quality, large audit firms’ audit firm tenure with audit quality are Positive correlation relationship, small audit firms’ audit firm tenure with audit quality are inverted U-shaped relationship. In addition, the study found that in the initial stages of the audit contract, compared with the small audit firms, large audit firms had access to specific customer knowledge more quickly. However, during the later period of the engagement, the audit quality of Big audit firm loses its prominence as the non-Big audit firm catch up with the learning effect.Finally, according to the results of this article have put forward policy suggestion is that should be according to the scale of audit firm to adopted different rotation system, to avoid altogether with all type of mandatory rotation. The small public accounting firm shall stre ngthen its rotation regularly. For large-scale audit firm, rotation system may not be important for it, by certified public accountants themselves to strengthen quality control can be in a certain period and to a certain extent to maintain audit quality in the ideal level.