| The merger plays an important role in the development of accounting firms. From the "South Sea Company" which led to the birth of CPA to the "Enron" led to the bankruptcy of Arthur Andersen, the international accounting firms have gone through several stages of mergers. Owing to numerous acquisitions and joints, the "Big Four" have so many outstanding advantages in size and position.Due to several reasons, there is still a relatively large gap between overall level of China’s CPA industry and that of US and other countries. Therefore, a consensus has been reached among the China’s government departments, regulatory agencies, industry organizations, practicing profession and academic communities, which hopes accounting firms can do "bigger and stronger" and achieve economies of scale through mergers. In recent years, several merger waves arose in accounting firms, especially since2007, a series of proposals have been issued by the State Council of China to encourage mergers among accounting firms, which remove the institutional barriers of the firm’s large scale development, and further promote accounting firm mergers. Since then, the local accounting firms merge one after another.Audit quality is not only the life of the audit, but also the basis for survival of accounting firms. The merger is just a means to expand scale. No matter use what means, accounting firms eventually should improve the core competitiveness and enhance the professional competence. Then, whether audit quality be improved after the merger? Present literatures always assume that bigger accounting firms with high audit quality (DeAngelo,1981). However, it remains to be tested if the firm can improve audit quality after the scale expended because of mergers (Watkins et al.,2004).This paper uses a combination of normative and empirical method to research. In this paper, we use discretionary accruals as audit quality proxy variable. With accounting firms suffered mergers in the period for2007～2010, we use three years data examined the effect of audit firm mergers on audit quality. Research shows that:(1) Generally speaking, client’s DA is not significantly dropped after mergers. It implies accounting firm merges have not improved audit quality.(2) Distinguished between consolidation bases, the conclusion is different. For the combination between two big accounting firms, there is not significant evidence which audit quality can be improved greatly. The mergers of non-equal accounting firms can significantly improve audit quality. However, mergers among small firms will result in reduced audit quality.(3)Further study shows that client’s DA in mergers of no-equal is increased year after year, and only in the third year after merger can audit quality be found significantly improved, indicating the strength of the considerable merging parties need more time after the merger integration.The innovation of this paper mainly reflects in the three followings:1. Previous literatures mostly use normative analysis method. This paper analyzes the effects of audit firm mergers from the perspective of audit quality through empirical method.2. Conclusions are different on the relationship between scale and audit quality in previous research. The reason may be that some important factors are omitted. For example, audit firm size can be changed in a long time. This paper examined the change for audit quality before and after mergers, deepening the theory of the firm’s large-scale development from another aspect.3. Above all, this paper studied the effect of the third wave of mergers based on the latest financial data from2005to2011, and divided mergers into three categories which may have different influences in audit quality. Consist with theoretical analysis, evidence has been found that different mergers have different effect on audit quality. In order to make the conclusion more robust, we control other factors may influence audit quality and consider the impact of auditor changes. |
