The Conversion Of The Organization Form Of Accounting Firm And Its Influence On Audit Quality

The original form of mixed limited liability company(LLC)and general partnership(GP)has somewhat constrained the development of accounting firms,and at the same time it cannot meet the needs of economic growth.Furthermore,with a series of failed audit cases exposed to society,the public has raised more requirement to audit quality of public companies.Just under such a background,a round of public policies made recent years encourage accounting firms to change their original form,and has started a new wave of reform in our countries' accounting firms.On July 2010,the Ministry of Finance(MOF)and other related ministry of China jointly issued the provisional regulations on encouraging large and medium-sized accounting firms to reform to limited liability partnership(LLP),claiming that the large-sized accounting firms reform to LLP before Dec.31 2010;and medium-sized accounting firms reform to LLP before Dec.31 2011.On Jan.2012,MOF and China Securities Regulatory Commission(CSRC)announced that one of the application conditions for engaging in securities and futures is that the accounting firm must be in the organizational form of LLP.These stipulations promote the large and medium-sized accounting firms in China to reform the organizational form from limited liability to LLP.In the context of that policy,the accounting firms began their form transformation one after another,and in the year ending Dec.31,2013,all the firms with corresponding securities business qualification had completed their transformation.Then what kind of policy effects will the transformation bring to the accounting firms?What actions will auditors take,will they take initiative to improve audit work quality because of taking higher legal responsibility and risk?Whether the transformation policy really promotes the development of certified public accountants industry effectively?Given the availability of data,most of researches of recent years are normative-oriented,empirical studies are insufficient.On the basis of methods of theory and practice,this article uses tries to examining policy effectiveness in the aspect of audit quality.Specifically,on the basis of theoretical analysis,this article utilizes the 3 years' data of A-share companies audited by 40 accounting firms completed transformation during 2010 to 2013 to build empirical model of audit quality.The 3-year data can divided into two parts,one of which is 1-year data before transformation and the other is 2-year data after transformation.After multivariable regression to the whole sample,we subdivide the sample into two periods,which are the 1st year and the 2nd year after transformation,and perform regression analysis respectively.The aim is to find out whether audit quality will change as transformation progresses.Based on this,subsample will be divided into group with positive earnings and group with negative earnings.Thus,we can see whether there is difference between the inhibitory effects of the transformation on the two different-direction earning types.Results of the study are as follows:The expected situation doesn't show up in the 1st year after transformation,instead it takes effects in the 2nd year.Such phenomenon means that transformation of the accounting firms effectively inhibits earning management level of public companies audited by those firms,but there exists the time-lag effects.Separation of the subsample into groups with positive and negative earnings leads to the conclusion that the inhibitory effect only acts on group with positive earnings,and for group with negative earnings it is not significant.