Common Auditors In M&A Transactions And Conflicts Of Interest

The acquisition process often involves considerable uncertainty,which are mainly caused by the asymmetric distribution of information between the parties to the transaction.M&A transaction can also be interpreted as the process of benefit distribution between the acquirer and the target,in which both parties manage to capture as much economic benefit from the transaction as possible,and this game is based on information asymmetry.When the same auditor is used by both parties,the common auditor will become a potential information intermediary and have an impact on the outcome of the M&A transaction.This paper first theoretically analyzes the mechanism of common auditor.At the micro level,common auditor can enhance the overall quality of the M&A transaction by mitigating the degree of information asymmetry in the transaction process;on the other hand,common auditor might make heterogeneous choice between clients in the transaction.In the course of facilitating exchange of information,common auditor may help the acquirer obtain more information from the target,which can also be regarded as the relative transfer of economic benefits from the target shareholders to the shareholders of the acquirer.At the macro level,common auditor can improve the efficiency of the market allocation of resources by alleviating the asymmetry of the information and,to a certain extent,improve the overall welfare level of the society.Secondly,using M&A transactions completed by domestic listed companies from 2011 to 2015 as research sample,empirical analysis shows that M&A transactions using common auditors have stronger performance than those using different auditors,indicating that common auditors in the M&A transaction played a role as information intermediaries and thus enhanced the overall quality of the M&A transaction.Finally,combining results from theoretical analysis and empirical research,this paper puts forward the following suggestions:First,changing the current audit fee payment system to repair the independence of auditor;second,include specific provisions in the standard regarding pre-disclosure of potential conflicts of interest,and provide more specific guidance regarding client information confidentiality.Third,the accounting firm can refer to typical precedents to reduce their exposure to litigation risk;Fourth,the need for more detailed legal provision regarding the exceptions to client confidentiality rule,and define as specific as possible the legal responsibility of certified public accountants.