The Study Of Auditor Size And Audit Quality

Since the reform and opening up, China’s economy developed quickly. Because of the develop of economy, the function of audit becomes very important. Significant progress has been made by the Chinese CPA profession. However, there is still a wide gap in the development between the global accountancy profession and Chinese CPA profession. In order to follow the pace of Chinese economic development and provide better support to the Chinese economic society, Chinese accounting firms are expanding their scale to enhance audit quality. Because of the particularity of the CPA’ work, the quality of their work directly influence the healthy development of the capital market. As we all know, the certified Public accountants’audit has great effect on the implementing of the macroeconomic policies, maintaining the order of capital market, Protecting interests of our investors and the Public. So the quality of audit is the basic of the CPAs industry and is the guarantee of the quality information of financial reports. Therefore, the auditor size must ensure to improve the capital market’s information quality, the development of auditor size must be to improve the quality of independent audits. The theoretical study is generally considered that the larger the firm scale, the higher the audit quality is.The relationship between auditor size and audit quality is still in controversy. According to reputation theory and deep pocket theory, the larger audit firms could supply a higher level of audit quality. However, only when the reputation mechanisms and legal mechanisms are effective, can these theories be valid. The internal agency theory expresses degree of skepticism that larger accounting firm for higher quality. The questions are that could larger audit firms supply a higher level of audit quality in China. The current paper examines whether the audit quality is related to auditor size in China by using financial restatement for audit quality. The results suggest that the audit quality of the global Big Four is higher than other firms, but the audit quality of the local Big Four is not higher than other local firms. The empirical results suggest that accounting firms could enhance audit quality to some extent by expanding the scale. However, to become the real’big’accounting firms, Chinese accounting firms should focus on the integration of resources and management after acquisition or combination, learn the successful experience from the global Big Four. Government should improve the related legal system to increase the auditor litigation risk. What’s more, social forces should be encouraged to participate in the supervision.