The Research On Consolidation Between Public Accounting Firms

Public accounting firms are always economic entities who pursue the maximization of their own interests. At the same time, they are also economic policemen who must protect the public's benefits. However, there exists potential interest conflict between these two tasks. Public accounting firms in reality then linger between them until they can find an efficient equilibrium where they will achieve the maximum of their own interests on the basis of the public's benefits. And the appearance of this efficient equilibrium depends on the formation of oligopoly in audit market. The knowledge of this market structure is of great current significance in solving CPA trade's "credit crisis" in our country. As we know, there are a large number of public accounting firms and these firms' scale are very small, which have led to excessive price competition in the audit market, low audit quality and poor international competitive ability of the accounting firms. Consolidation is a major way to solve all these problems. Therefore, the research on public accounting firms' consolidation has important theoretical and practical meanings.By reviewing the history of international public accounting firms, we find that the formation of "Big 5" is the final result of uncountable mergers. And this fact provides empirical evidence for our accounting firms' enlargement of scale through consolidation in order to develop oligopoly in the audit market. For one thing, public accounting firms are economic entities who pursue the maximum of their own interests and their conducts of mergers have important internal incentives, namely the improvement of operational efficiency and the acquisition of monopoly power. For another, accounting firms have a special character, that is, public reputation over profit-making. The audit demand's price rigidity and the peculiarity of audit product's being a kind of credit product necessarily determine that oligopoly is the efficient audit market structure. Then by comparing the present audit market structure between China and some other foreign countries, we find that there exists excessive competition in our audit market. So the encouragement of public accounting firms' consolidation is one of important ways to improve our audit market structure and solve the problems of low audit fees and small scale of the accounting firms. Finally, this thesis analyzes the two mergers in detail which took place in audit market in our country, points out their achievements and shortcomings, and then advances several suggestions for accountingfirms' future consolidation in our country.This thesis's main viewpoints and innovations include: (1) after reviewing the history of "Big 5", the thesis demonstrates the probability and necessity of oligopoly in audit market from the angle of accounting firms as rational economic entities and from the point of view of public accounting firms as economic policemen, respectively. Then the comparative study of present audit market structure among America, United Kingdom and Australia proves this oligopoly audit market structure. Therefore, we safely draw the conclusion that consolidation is an important way to develop large accounting firms and oligopoly in audit market; (2) the thesis provides a positive analysis of the relationship between accounting firms' audit fees and accounting firms' scale in our country. The results suggest that large accounting firms' audit fees are higher than small firms', and this conclusion provides strong empirical evidence for our accounting firms' consolidation to improve audit market structure, to increase audit fees and to better audit quality; and (3) on the basis of the summarization of the experience and lessons of the last two mergers that took place in audit market in our country, the thesis makes use of the framework of new institutional economics and puts forward several strategies for accounting firms' future consolidation in our country.