A Compared Study On The Industry Specialization Between Inland And The Big Four Accounting Firms

Industry specialization is a business and market competitiveness strategy of accounting firms, which is based on the high degree of attention on audit industry knowledge and expertise. It is a market phenomenon when the auditing market has developed to a certain stage. Industry specialization has a great influence on the development of accounting firms: it will give access to accounting firms certain comparative advantages in the fierce competitive environment; it can make the accounting firms distinguished from other non-specialized ones and set a good reputation of stability; it can make accounting firms hold their own human capital mobility and obtain audit fees and premium scale returns.Our auditing market will be further opened, with the pace of global economic integration speeding up, and the rapid development of the domestic listed companies. In this process, the corporation will inevitably require accounting firms to have the international standards operational level. At the same time, the famous internationally accounting firms have developed in domestic auditing market, with their advantages of market competition experience, advanced auditing technology, strong international background, transnational business networks, excellent reputation and the high quality convenience service, they become great threats and challenges to the audit industry of our country which is developing now.September 29, 2006, the Chinese Institute of Certified Public Accountants issued the "On the Promotion of the Views of Bigger and Stronger for Accounting Firms (Draft)." Under such a policy and practical background, it has become the primary problem that the accounting firms are in the face of, which is how to further improve and develop domestic industry specialization operations of accounting firms, improve their core competitiveness and make them develop steady and healthy in the international strong impact.In order to solve these problems, we must be fully aware of the audit market situation at home and abroad, make research of industry specialization in the field of business strategy, comparing the domestic and international industry specialization of accounting firms, to find what we are lack of, suit the remedy to the case. The paper makes a compared study on the industry specialization of the international "big four" and our inland accounting firms. We can find the gap between the two group, learn the experience of industry specialization from the international "big four" accounting firms, to create new development ideas for our inland accounting firms and reduce the gap, get a place in the increasingly fierce c market competition finally.We coordinate the previous literature first, the industry specialization research of accounting firms developed earlier in foreign countries, even can be traced back to the theory of the labor division in Adam Smith's "Wealth of Nations". This theory made the development of productive labor to run to industry and specialization. However, there are only a few of early literatures about industry specialization. Until 1967, Zeff and Fossum first described the industry specialization of the United States audit market. In the following years, scholars made unremitting research from many different ways, including the theoretical and measure research, the relationship research between industry specialization and the quality of auditing, fees of auditing, the risk of auditing and so on. Their conclusions and viewpoints were not unification, and leaving a foundation and space for the future study. The Chinese scholars took a late start on the research from 2001, so far only a few of them have published representative results.We make a theoretical analysis on the concept of industry specialization first, expatiate the meaning, nature, characteristics, origin and history of development of the specialized industry accounting firms. The paper describes the three ways to measure the industry specialization of accounting firms which have been widely used. They are auditor's market share, auditor's portfolio share, weighted market share. Based on the actual situation of our audit market, we select the essence, use the weighted market share in the final analysis, and afresh prescribe the measure benchmarks of the industry specialization of accounting firms.Then we selected samples data of the listed companies by the year and industry, using four different aspects index to measure the industry specialization level of the two groups, including the numbers of client, Auditor's market share, Auditor's portfolio share, weighted market share. We find that there is a big gap between international big four accounting firms through comparing the conclusions with standardized analysis and descriptive statistics. According to the conclusion figures, we institute a further analysis of the causes of this gap, try to explain it, the formation of this gap is mainly due to: the development of China's capital market only has a short history of 20 years, without mature operational mechanisms and the effective demand for auditing quality, which has become the most fundamental obstacle for the development of the industry specialization of accounting firm. In addition, the country's listed companies have a low degree of concentration in the audit market, with the fierce competition, many accounting firms give up the long-term strategic direction because of the pressure of the competition for customers.Based on above analysis, in the last part of this paper we attempt to give some suggestions about the development and consolidation of the industry specialization of inland accounting firm, such as improving the operating mechanism, developing the size of inland accounting firms, strengthening supervision and control. We hope that domestic accounting firms could win the long-term competitive advantage in the global auditing market.Whether in terms of theoretical or practical perspective, the development of industry specialization of domestic accounting firms is in line with the development of China's market economic system and the rules of the auditing market competition.Our comparative study could deepen people's understanding about the theoretical development of the auditing markets and accounting firms, deepen our understanding of the industry specialization management. It will make the domestic accounting firms to learn experience from the international big four accounting firms, gradually to develop them into a group firms full of industry expertise and international competitiveness. They will undertake the business of domestic and international high-end firms, in order to win the competition in the future. This has an important significance on easing the tremendous survival and development pressure of accounting firms, encouraging their to take part in the international competition, improving their core competitiveness power, promoting the development of the auditing industry.