Study Of Theaccounting Firm Charac Teristics's Impact On Audit Quality

Audit quality has always been the focus of the audit market. If the accounting firm can find a way to both reduce the costs and improve the quality of auditing, it will not only rapidly enhance its reputation and status in the audit market, but also ensure the source and number of its customers. The developing of industry specialization is in accordance with differentiation strategy of the strategic management theory, which is the manifestation of product differentiation in audit market and an important means adopted to improve the competitiveness of accounting firms.Then, Can industry specialization improve the firm's audit quality? Some scholars have explored this issue from the normative and empirical point of view. However, their research results are inconsistent. Does Industry specialization fit in with the development of the Chinese audit market? What kind of market structure is suitable for the development of industry specialization? These problems have attracted much attention of academic circles and practice fields and become the main contents of this thesis as well.Firstly, based on the literature review, this thesis analyzes the basic contents of the characteristics of accounting firms and then explains the theoretical basis for the development of industry specialization. In this thesis, the characteristics of accounting firms mainly include the firm size, the market concentration, industry specialization, and other elements. According to the industrial organization theory, when product market competition to a monopoly status, it will help to improve the quality of products. To meet the demands of such competition, the market must have plenty of companies which are big enough and manufacture the same type of differentiated products. What's more, the manufacturers are free to enter or leave the market. Accordingly, the appropriate market concentration, large-scale accounting firms, industry specialization and non-trapped barrier will meet the above conditions of the audit market, which is conducive to the improvement of audit quality.Secondly, this thesis makes an in-depth analysis of the influence of industry specialization, firm size and audit market concentration on audit quality. Industry specialization is considered as an advantage which accounting firms have over their peers in competition, for it can enhance audit quality; firm size is the manifestation of the firm's comprehensive strength, i.e. the greater the size of the firm, the higher the quality of auditing; and for the market concentration, this thesis focuses on the market concentration of the individual firms, which is displayed by market share. Firms with higher market concentration should also have a higher audit quality. These elements are interacted and interrelated, and determine the competition status of the audit market.Finally, based on the reported annual data released in 2008 by A-share listed company in the petroleum industry, metal and non-metallic manufacturing industry, machinery and equipment manufacturing industry and pharmaceutical industry, this thesis adopts the method of multiple regression analysis to carry out an empirical study on the samples of sub-sectors as well as on the mixed interactive items. The results show that the three elements of the characteristics of accounting firms have different impact on audit quality in different industries; firm size has a significant positive correlation with audit quality; market concentration and industry specialization have no significant effects on audit quality; but when large accounting firms have a higher market concentration, the development of industry specialization will help improve the quality of auditing, but the effect is not significant.