Research On The Impact Of Audit Firm Merger And Clients Flow On The Quality Of Financial Reporting

For a long time,the international "big four" dominate Chinese audit market,which adversely affects the healthy development of local audit firms and Chinese economic information security.Therefore,since 2006,Chinese local audit firms have raised the third wave of consolidation under the government promotion,aiming at become "bigger and stronger" after mergers.As a kind of institutional arrangement,independent audit give external supervision to the transfer process of the financial report of listed company.Therefore,local audit firms becoming "bigger and stronger".through mergers can improve the quality of financial reporting of Chinese listed companies and maintain the healthy development of Chinese market economy.Although there are a lot of recent studies on the economic consequences of the audit firm merger,the scholars didn't gain coincident conclusions on the impact of the merger on the quality of listed companies' financial reporting.Under the audit firms merger wave,the clients flow after the mergers of local audit firms also has some changes,and different clients flow eventually have different effects on the quality of financial reporting.Although the auditor change has been a hot and difficult point in audit research fields,based on the literature review,we found that most study focused on the influencing factors of clients flow under the perspective of audit firm mergers using case studies without involving the impact of clients flow on the quality of financial reporting.Therefore,this paper not only studies on the impact of audit firms mergers on the quality of financial reporting but also further studies on the impact of clients flow on the quality of financial reporting.Based on the local audit firms merger cases which occurred in 2006-2013,according to the audit firms' clients flow after the mergers within two years,this paper firstly studies respectively the influence of audit firms merger on the quality of financial reporting after distinguishing the audit firms by scale using the data of non-changing clients within five years;Secondly,analysis the difference of the quality of financial reporting within different clients flow.Research conclusions show that:(1)The combined audit firms of different scale will have different impact on the quality of the financial reporting of listed companies.The listed companies which renew combined large audit firms improve the quality of the financial reporting while thelisted companies renewed the combined small audit firms don't significantly improve the quality of the financial reporting;(2)different clients flow have different influence on the quality of financial reporting.compared with the clients which renew the combined large audit firms,downgrade-changing clients have lower quality of financial reporting;compared to the clients which renew the combined small audit firms,upgrade-changing clients have higher quality of financial reporting;compared to the clients which renew the combined audit firms after mergers,the same level changing clients have lower quality of financial reporting.