Rearch On Audit Firm Mergers And Their Effect On Audit Quality

To promote the scale and internationalization development of audit firms,CICPA presented the strategy of big-and-strong in2006.As one of the three strategies of CPA industry,big-and-strong have received great attention from the leaders of the Party and the State Council.It’s definitely pointed out that the audit firms should follow the development concept to associate between strong ones and become bigger and stronger in the56th document.Making a general survey of the development course of the international big-four,it can be found that they have reached such a large-scale all by mutiple mergers in past decades.We have experienced three amalgamation waves since strypped-down in1999.The first one was strypped-down, then the development pattern of scale,standardization and pluralism of audit firms and the approval of securities and futures was raised in2000.Resent years the strategy of big-and-strong is presented.A series of policy no doubt become the catalyst of merger.But which is different from our country and the other countries is that our audit finn mergers are almost caused by the government’s advocating.If the mergers achieve the ideal effect and the audit quality is raised after merger still need further research.This paper combines the standardization research and empirical research.First we collect the documents of audit firm merger and audit quality home and abroad and classify the different views, hoping to find some research perspectives.Second we review three amalgamation waves of local audit firms,and sum up the profit we have got and analyze the probable problems appearing after merger.Third we analyzed theoretically the relationship between audit firm size and audit quality from the theory of economy of scale and signal theory,and attempt to find out the inner link between them.Finally we can find the change of audit quality after merger through the research in empirical evidence from listed companies which are audited by merged audit firms.This paper will answer the question that whether audit quality increases after merger or not and how the policy effect the increasing or reducing.The empirical result indicated that discretionary accruals,the substitution variable of audit·quality,significantly reduced after audit firm merger.It can be considered that audit quality was significantly increased after merger and the effect of merger was shown.The further research proves that the effect of mergers happened after2007are better than that happened before2007,which illustated that the policy have positive effect on audit firm merger.