Research On The Economic Consequences Of Accounting Firm Merger

Since the Reorganization in 1998,accounting firms have experienced four merger waves,and merger has become an important way to achieve the goal of large-scale expansion and growing "bigger and stronger" for accounting firms.In the fourth merger wave,the merger of RSM China Certified Public Accountants and Crowe Horwath Certified Public Accountants became a hot issue.The new-established accounting firm,Ruihua Certified Public Accountants,became the biggest domestic accounting firm in China.The international "Big 4" accounting firms occupied the leading position of Chinese audit industry for many years until the establishment of Ruihua Certified Public Accountants broke this kind of market structure,which also promoted the rapid development of local accounting firms.However,as time goes by,the issues left over by history have become increasingly apparent because of ineffectively integration.Ruihua was punished by regulatory agencies in 2016 and 2017 because of the financial fraud of Shenzhen Keybridge Communications Co.,Ltd.and Hainan Yatai Industrial Development Co.,Ltd.The severe punishment from Ministry of Finance and China Securities Regulatory Commission sounded the alarm for CPA industry in China.Domestic accounting firms'brand reputation has been impaired as well.As a representative of enlarging scale through merger,the economic consequences of Ruihua's merger,the problems during integration and subsequent governance,and the thought of avoiding being "bigger but not stronger"after merger,have become hot spot issues in theoretical and practical research.This paper chooses Ruihua Certified Public Accountants,which was established after the merger of RSM China Certified Public Accountants and Crowe Horwath Certified Public Accountants,as case study,and combines the motivation of merger and relevant theory basis to analyze the economic consequences of Ruihua after merger and whether Ruihua becomes "bigger" and "stronger".This paper sums up the problems arising in the integration and subsequent governance,and puts forward the enlightenments for accounting firms and regulators.The paper is mainly consisted of three parts.The first part is theory analysis about accounting firm merger,including the types of merger and motivation for merger.This part provides theory basis for analyzing the motivation and economic consequences of RSM China and Crowe Horwath's merger in the following part.The second part analyzes the motivation of merger,economic consequences of merger and problems arising in merger.The motivation of Ruihua's merger mainly includes three points:First,for the needs of diversified development,cultivating the ability to undertake large-scale audit projects and expanding business areas;second,in order to enhance accounting firm's influence in the audit market,improve business income and contend with the "Big 4”;third,in order to enhance practice quality and create a good brand reputation.During the analysis of economic consequences,this paper uses Ruihua's scale indicators to analyze whether it grows bigger,uses industry portfolio share and indicators of audit quality to analyze whether it becomes stronger,and compares these indicators with "Big 4".In terms of scale,the business income of Ruihua has increased and maintained steady growth,comparing with the "Big 4" the CPA's per capita income is lack of strength;Ruihua has large number of CPA and low educational structure;the number of customers in listed companies is increasing,but the average audit cost is far behind the "Big 4".In terms of the industry portfolio share and audit quality,Ruihua's industry expertise is concentrated in the manufacturing sector;the gap between the proportion of non-standard audit opinions issued by Ruihua and the overall level of the industry has been narrowing,the audit quality of Ruihua has improved slightly but not sustained;the projects,which were involved in the two administrative penalties,were procured by Crowe Horwath.And the drawbacks caused by ineffectively integration are emerging.Ruihua's brand reputation has been impaired and the loss of clients is serious after receiving administrative penalties for two consecutive years.From the analysis of economic consequences of Ruihua,this paper finds that the merger of RSM China and Crowe Horwath has following problems:First,the selection of merger objects is imperfect,the integrated management of headquarters and branches has deficiencies,and the merger is non-substantive;second,the historical problems have not been solved and its quality control has deficiencies;third,the competitiveness of Ruihua's brand reputation is not as good as the "Big 4";forth,the recruitment standard is imperfect,and comparing with the,Big 4",Ruihua's employees are lack of value-creating ability.The third part is the enlightenments of the accounting firm merger case.After merger,Ruihua achieved the goal of growing "bigger",but failed to achieve the expectation of becoming "stronger".For accounting firms,choosing merger objects carefully and evaluating seriously before merger are necessary;they also should strengthen the integrated management of headquarters and branches,improve the quality control system,recruiting criteria and training system.As for regulators,there are two proposals.First,they should perfect relevant laws and regulations,supervise and restrict the behavior of disrupting the competitive order of audit industry;second,regulators should strengthen external supervision and increase punishment intensity,improve the deterrence of administrative penalties,and guide the industry self-discipline.This paper enriches the research of evaluating accounting firm merger's economic consequences from multiple perspectives,provides scientific and reasonable proposals for accounting firm's development after merger.It also has practical significance to achieve the goal of becoming "stronger" instead of growing "bigger" in the process of rapid expansion through merger.