A Case Study On Restructuring Outcomes Of Ernst And Young CTA

The Ministry of Finance of China issued “Several Opinions about speeding up the development of Chinese CPA Industry”(State Development Office [2009] No.56),launching the transformation of Sino-foreign cooperative accounting firms.On May 2,2012,the “Sino-foreign cooperative localization CPA restructuring plan”(finance and accounting [2012] No.8)required Sino-foreign cooperative accounting firm to achieve localization,according to the establishing commitments.In other words,“big four” need to adopt organizational forms in conformity with Chinese laws and regulations—the special general partnership after the maturity data of the cooperation(or before the due date of the cooperation).The event of transformation is not only conducive to recreating good conditions for fair market competition,but also help to improve the ability of internal administrative control and data quality monitoring,accelerating the scientific development of Chinese audit industry.As of December 31,2012,“big four” had completed transformation.About the question whether this transformation can bring positive economic effects,the existing researches mainly used some indexes,including revenue,audit fee,audit quality,customer structure and so on,to evaluate the economic effects.Few academics completely evaluate the outcomes in the use of structured comprehensive measurement system with the object of an accounting firm.In order to evaluate economic consequences of Ernst and Young CTA(EY)from the perspective of market,customer and accounting firm,this paper adopts case study method.In this paper,the author combines the financial data of A-share listed companies audited by EY from 2009 to 2015.This paper selects customer structure(quantities,scales and liquidity),revenue structure(total revenue,average income of CPA and audit fee),audit quality(frequency of non-standard audit opinions,timeliness of customer financial information and accrued profits),market share and cumulative rank as indexes.Firstly,this paper recalls and sorts out the existing study on economic outcomes of the transformation from the perspective of audit quality,audit fee,and customer structure.Secondly,this paper sets forth the evolution process of organizational form of the certified public accountant firm in China.Then in theory,the paper uses audit price,audit quality and audit reputation to deeply analyzes the outcomes of accounting firm organization forming into a special ordinary partnership.Thirdly,the paper does the longitudinal analysis of the effects of transformation on customer structure,revenue structure and audit quality;and does the vertical analysis of the effects on market share and cumulative rank.Lastly,this paper analyses the cause of the negative consequences,appearing as the drop of audit quality,the reduction of market shares and the decline in cumulative rank.After detailed case study on the transformation of EY,this paper has drawn the following conclusions.First,the transformation did not significantly increase the audit quality.The audit quality even reduced.Second,the customer structure of EY had great potential improvement owing to the transformation.Third,the transformation optimized the revenue structure of EY.Forth,the event of transforming to the localization heighten competition of accounting firm in China.