Research On Competitive Strategy For China Auditing Service Firms

In2012, a very influential program called Sino-Foreign Cooperative Accounting Firms Localization Program was issued by Ministry of Finance and other four ministries, which were State Administration for Industry, Ministry of Commerce, Exchange Office, China Securities Regulatory Commission, marking the official kickoff of the localization process of the Big Four from limited partnership to special general partnership. After the reform, local accounting firms will compete with Big Four within the same legal system and market rules, leading to new consequences in auditing industry. From this perspective, local firms will face with extreme challenges as well as great opportunities. Under this circumstance, the paper will lead to both academic and realistic achievements.After reading relevant papers on audit market both domestic and abroad, the author found that at present most researchers generally focus on market structure, market conduct and market performance, or just proved some relationships between audit quality and audit market structure with empirical evidence. Few concentrates on status quo of audit market comparing local accounting firms with Big Four.The paper analyzed domestic audit market structure using SCP Mode from industrial organization theory and revealed the traits of China’s audit market. It also referred to how market conduct influences market structure with empirical support. Through comparison between local firms and Big Four using different indicators, this paper discusses current problems local ones are confronting with, hoping to provide solid theoretical support for how competitions should be carried out in audit industry. I hope this will enhance people’s awareness for audit market and the development of accounting firms and therefore provides theoretical support for local ones exceeding Big Four.This paper chose all public companies’financial data in A-share market within three years (from2009to2011).Then I calculates audit market concentration ratio and accordingly inferred the market structure. Next, auditor’s industry specialization has been measured both statistically and empirically. Relevant policies and suggestions are consequently proposed to local accounting firms.