The Comparative Empirical Research Of Audit Quality Between The Big Four And The Eight Local Accounting Firms

October2009, the State Council forwarded the Ministry of Finance " A number of views on accelerating the development of China’s CPA industry." Take this opportunity, our local accounting firms set off a wave of consolidation in the past few years, and has emerged several large-scale local accounting firms. December2010, the Mainland and Hong Kong reached a consensus, when the companies listed in the other market are audited, they have the option to choose the local accounting firm in accordance with local auditing standards. As a landmark, since December15,2010, the mainland approved of major accounting firms providing audit services to companies listed in Hong Kong(H share companies) with the Mainland auditing standards, H shares "dual Audit" policy will be canceled. And the permitted12local accounting firms that can audit the H share companies, in addition to the big four international accounting firms, there are eight local accounting firms. This fully shows that under the guidance of national policy, the audit quality of local accounting firms has been greatly improved compared to before, and has been recognized by the accounting profession in Hong Kong. Based on this, we believe that after the release of the national policy, the audit quality of local accounting firms has been greatly improved. To prove it, we use the empirical study to examine this hypothesis.But nearly two years, there are a lot of accounting fraud scandals (for example, the burst of the "wanfushengke" IPO fraud case), without exception, the accounting firms involved are all local accounting firms. This also makes us understand that, while although local accounting firms made great progress in recent years, but in the domestic market, compare with the big four international accounting firms, the audit quality still has a gap. Reasons for this result,I think is the imperfect laws and regulatory environment. Because of the imperfections of the system and the environment, smaller accounting firms face the same rewards in the opportunity but just cost less than the big firms, so the small firms have more willing to take risk to win the high returns illegal. While at the domestic market, the scale of local accounting firms is still smaller than the big foir international firms, which leads to our local firms have a stronger incentive to compliance risk, so the audit quality is lower. In order to verify the correctness of the reasoning, we chose the local accounting firms which can audit the H shares (the big four international accounting firms and eight local accounting firms), comparing the difference of their audit quality. Because the laws and regulations of the Hong Kong market is more robust, the regulatory environment is more perfect and have more stringent punishment, so this study can show the regulatory environment impact on the audit quality.Through this research, I hope I can find the gap of audit quality between our local and international accounting firms, make relevant policy recommendations and advice for our local accounting firms, to provide reference and guidance for the bigger and stronger of our local accounting firms.