The Impact Of Two Expansion Methods Of Accounting Firms On Audit Quality

Since the rebuilding of Chinese CPA system in 1980,accounting firms have developed rapidly.On the one hand,the rapid development of Chinaese capital market has led to a significant increase in the number of listed companies,which has provided tremendous growth potential for the development of accounting firms.On the other hand,the regulators have encouraged accounting firms to expand scale by enacting policies.Under the dual drive of market demand and national policy,Chinese accounting firms have achieved great progress in terms of scale expansion and business diversification.In the process of expanding scale,many local accounting firms have developed into national accounting firms.Accounting firms expand the audit market mainly through the establishment of branches and mergers in China.These two different expansion methods have different impacts on the management of branches,which affects the audit quality of accounting firms.Baker Tilly China has expanded its scale by establishing branches since 2010,and Shu Lun Pan CPAs has expanded its scale mainly through mergers.Therefore,this paper analyzes the auditing quality differences between the two firms from the perspectives of audit fees,modified audit opinions and administrative penalties.Then this paper analyzes the reasons for the different audit quality,and offers corresponding suggestions for the expansion of accounting firms.The study finds that the establishment of branches is more conducive to improving audit quality than the merger.The main reason is that the expansion mode affects the control of branches and interest relations between headquarters and branches.Establishing branches makes it easy to control branches,which facilitates the integrated management of resources and risk control.At the same time,the establishment of branches can closely link the interests of partners by establishing "a profit pool" to prevent partners from violating regulations for personal interests.However,as for the merger expansion,the control of branches is insufficient,and the integrated management is difficult.Moreover,it is difficult to implement the profit distribution mechanism of "a profit pool",which may lead to the phenomenon that the partners work independently.When choosing an expansion method,accounting firms have to consider administrative power and expansion costs in addition to audit quality.Therefore,if the accounting firm chooses to implement the merger to expand its scale,it is necessary to pay attention to the human resources,customer resources,management mechanism and cultural atmosphere of the takeover target.After the merger,the accounting firm should also strengthen the control of the branch office to ensure that the branch's human resources level,risk management level,audit quality level between the branch and headquarters are consistent.In addition,because the establishment of branches requires the accounting firm to invest a lot of time and money,the firm that chooses to set up branches should pay attention to the time cost and economic cost of expansion.In short,accounting firms need to choose the appropriate expansion method according to actual situation,and promote firms to be "stronger" while "bigger".