The Conversion Of The Organization Form Of Accounting Firm And Its Influence On Audit Quality

In July 2009, the Ministry of Finance(MOF) of China issued “Several Opinions about speed up the development of China’s CPA Industry”, this policy launched the reform of certified public accountants industry in China. In July 2010, MOF of China issued “Interim provisions on encouraging large and medium-sized audit firms to adopt special partnership(SP) as their organization form”, it requires that large CPA firms musttransform theirorganization formto special partnership before December31,2010 and encourage medium-sized audit firms complete their reforming before December31,2011.The issue of interim provisions is a remarkable signal of a new round of reform on accounting firms’ organization form after deregulation reform.The main reason of promoting this reform is that compared tolimited liability partnership which has the defects of providing lower quality audit service, SP inherits the spirit of partnership which is “risk sharing,benefit sharing”, as well adds the partner’s legal liability risk of audit failure, so it can help improve the audit quality. At the same time, the organization form of SP is an advantage for the accounting firms to undertake international services and accelerate the pace of the accounting firms in our country tobecome bigger and stronger.As of December 31, 2014, the large accounting firms have been completed theirreform, the medium-sized public accounting firms is in the midst of reform; the reform has achieved periodic effects so far. This paper discusses the topic whether the audit quality is promoted when the accounting firms become SP from both perspectives of issued reform policy and the accounting firms finish the transformation respectively. On one hand, this article can enrich the related literature about the relations between the reform of accounting firms and audit quality; and on the other hand, it can provid actual evidences to evaluate the effectiveness of this reform policy.This article combines the methods of normative research and empirical research, and examines effects of audit quality when accounting firms’ organization transform into SP from twoperspectives. From the aspects of theoretical, this article analysis the difference of audit quality between the two perspectives on the basis of “deep pocket” theory, “rational economic man” theory and reputation theory. From the aspects of empirical,this article selects three accounting firms which have already finished their reform before December 31, 2010, seven accounting firms which have already finished their reform before December 31, 2012 and twenty accounting firms which have not finished the reform before the end of 2012 as the research samples, while adopting the financial data of A-share listed companies audited by these accounting firms from 2009 to 2012 and using discretional accruals and accounting conversation as the substitution variables of audit quality, based on the accrued-cash flow measurement model and Jones measurement model which has to distinguish industry and year, this article build the primary regression model after adding some relevant control variables, then use observations of every two years to product the regression. In order to increase the accuracy of the results, thisarticledo further analysis. The conclusion is: the issue of interim provisions policy can make an contribution to improving the audit quality, and thephenomenon that audit quality can be improved significantly after the accounting firms finished its reform is fail to be found. The explanation of this phenomenon might be: in order to response to the high legal risks brought by the reform policy, the accounting firms take various measures to cope with this risk in advance, and it will not start reform until it reduce the legal risks to its acceptable level, so it may weak the possibility for us to observe that the audit quality can be improved after the accounting firms finished their reform. Through the analysis of research conclusion, this paper offers three suggestions for improving the accounting firms’ reform: complete the corresponding legislation construction as soon as possible, perfect the legal mechanism; government departments should guide the reform actively and the industry association should be strengthen the communication among the accounting firms; and pay attention to the reform of small and medium-sized accounting firms.