Rotation Of Accounting Firms And Audit Pricing

The influence of audit pricing caused by the accounting firms rotation has caught a lot since 2013. However, previous research does not conduct on this issue,and most of the studies focus on the factors that affect audit pricing and the issue related to accounting firms rotation. There are many factors which influence the auditing pricing of certified public accountants, including asset levels, debt to assets ratio, inventory levels, receivables, and total net interest rate. When their gloss negligence or deliberately malicious actions causes their partner enterprises’ great losses, the formation of special ordinary partnership requires accountants bearing infinite responsibility, instead of finite responsibility. This will result in losses on all sides, such as litigation risk, reputation losses, and lower income in the future.Therefore, accounting firms will charge a related compensation fee, which will increase the total auditing fee. In this case, auditors could reduce the possibility of bearing economic responsibilities through improving audit quality and controlling audit risk. They may also increase auditing pricing for high auditing quality and charge some compensation fees for future audit. This paper, will examine the effect of auditing firms rotation on their auditing pricing by modeling audit pricing model of the rotating accounting firms.This thesis uses the listed companies data from 2009 to 2013 and employs Simunic(1980) auditing fee model to establish auditing pricing models. We compare the influence of different financial risk, management mechanisms, and industry classification(emerging industry and traditional industry when accounting firms convert to special ordinary partnership system). The empirical results point out that the presence of accounting firms rotation increase their audit pricing, and companies with high financial risks ate charged higher audit fees than those with lower financial risks. However, we find management mechanisms can not increase audit pricing, andindustry classification group can not show a significant different.Consequently, the accounting firms rotation has improved the standard of audit market.