The Influence Of The Organization Form Of Accounting Firm On Audit Quality

In recent years, with growing incidence of financial fraud, the audit quality provided byaccounting firms is being doubted. In order to improve the audit quality provided byaccounting firms, the ministry of finance issued the “Interim provision on encouraging largeand medium-size audit firms to adopt special partnership as their organizational form” on July,2010, claiming that large accounting firms change organizational form to special partnershipbefore December31,2010and encourage medium-sized accounting firms finish reformingbefore December31,2011. We think the organizational form of special partnership canimprove the audit quality. In recent years, with the development strategy implementation ofChina’s CPA industry becoming bigger and stronger, accounting firms themselves establishbranch offices. The establishment of the branch offices, however, is greatly influenced bynational policy guidance, it means that the accounting firms may neglect the management ofbranch offices. In this case, the research of the influence of the organization form ofaccounting firm on audit quality is valuable. The different influence of special partnership onaudit quality of accounting firms and their branch offices will become a new research branch.The paper summarizes domestic and foreign’ related research literature and found thatlegal liability can subject the CPA’s behavior and improve the audit quality. However, theyalso found that the legal liability is not the bigger the better, increasing the risk of CPA legalliability does not necessarily improve the audit quality, there should be an appropriate degreeof CPA legal liability. Then this paper analyzes the features of different organization forms.Different organization forms mean different CPA legal liability, and it can effects the auditquality. Then, the paper emphasizes the empirical tests to study the relationship betweenorganization form of accounting firm and audit quality and the different influence of specialpartnership on audit quality of accounting firms and their branch offices. We choose2135listed companies as the sample, control the features of accounting firms and clients.We find that the accounting firms using special partnership as their organizational formcan provide better audit service. The audit quality of accounting firms is more sensitive forspecial partnership than branch offices. We also find that accounting firms can provide betteraudit service than branch offices. However, we do not find the size of accounting firms or theauditor regional have an impact on audit quality. So, we should encourage accounting firms change organization form to special partnership and build audit quality control system. Thispaper provides a new perspective for the study of audit quality and provides the basis thatspecial partnership can improve the audit quality. And researcher should discuss themanagement model of branch office.