The Contagion Effect On Audit Quality Of Accounting Firms' Merger

In recent years,China's listed companies have frequently suffered financial scandals,financial restatements and even fraud.Audit failures are common.In the institutions auditing these listed companies,Ruihua Certified Public Accountants appear more frequently.According to the "Information on the Top 100 Accounting Firms of the 2018 Annual Business Revenue" issued by the Chinese Institute of Certified Public Accountants,Ruihua Certified Public Accountants were subjected to 5 administrative penalties by the China Securities Regulatory Commission in the three years from 2016 to 2018,including Shen Zhen Key Bridge Communications,Hainan Ya Tai Industrial Development,Zhenlong Specialty Products,Dongguan Kingsun Optoelectronic and Chengdu Huaze Cobalt&nickel Material are five listed companies.In 2019,Ruihua Institute was caught in the whirlpool of public opinion due to the thunderstorms such as Kangde Xin Composite Material Group,Han's Laser Technology Industry Group and Furen Pharmaceutical Group Industrial.Then Ruihua was investigated by the Securities and Futures Commission.After that,the client resources of Ruihua Certified Public Accountants were significantly affected.More than 30 IPO projects were suspended,more than 20 listed companies' financing projects were forced to be suspended,and many companies issued announcements announcing changes to their accounting firms.This is undoubtedly a major blow to Ruihua.Behind this series of events,the audit quality of Ruihua Certified Public Accountants has aroused people's attention.Whether the audit quality of Ruihua Institute is low or the audit failure caused by the auditors' deliberate concealment of financial information has caused widespread discussion.This article focuses on the audit quality of Ruihua Certified Public Accountants.After investigation,it has been found that Ruihua has undergone many mergers before its establishment.Shenzhen Pengcheng Certified Public Accountants is particularly interesting.The Shenzhen Pengcheng Institute was notorious for the financial fraud case of Yunnan Green-Land Biological Technology,but after being punished by the Securities and Futures Commission,it merged into Guofu Haohua Certified Public Accountants,and then Guofu Haohua was merged into Ruihua,so most of the certified public accountants of the Shenzhen Pengcheng have joined Ruihua's work with the merger,but some of them have repeatedly made mistakes,and this article found that audit failures related to Ruihua,such as Key Bridge Communications,Kingsun Optoelectronic,Huaze Cobalt&nickel Material and Kangde Xin are brought by Shenzhen Pengcheng.Therefore,after the accounting firm merges into another firm,will the audit quality be improved due to the influence of the firm,or will the audit quality be reduced?This article has conducted in-depth research on this issue.Some scholars at our country and abroad have studied the question of whether the merger of accounting firms will have an infectious effect on audit quality,but have come to different conclusions.Based on reputation theory,scale theory and rational economic man theory,this paper selects the merger of Ruihua Certified Public Accountants as a case study,and compares the discretionary accruals of clients brought by Shenzhen Pengcheng and other clients of Ruihua from 2013 to 2017.The level of profit indicators and the level of discretionary accruals profit indicators of listed companies audited by Ruihua and nonRuihua audited from 2013 to 2017,indicate whether the merger of accounting firms will have an infectious effect on audit quality.This article concludes that Ruihua Certified Public Accountants does have a contagious effect of low audit quality in the merger process,and the audit quality of Ruihua has declined significantly after the merger.On this basis,this paper analyzes the reasons for the contagious effect of the audit firm's merger on audit quality,mainly due to the contagious effect of audit quality between auditors and the expansion of the firm's scale,which has exacerbated the contagious effect of audit quality.Based on this research,this article puts forward some countermeasures and suggestions on how to prevent the contagious effects of low audit quality in accounting firms.The biggest feature of this article is the use of case analysis combined with empirical research to analyze,using data as the support,and using manipulated accruals as indicators to measure the audit quality of accounting firms,and on this basis,to prevent the emergence of accounting firms Countermeasures against contagious effects of low audit quality are proposed.The research in this article enriches the research level to some extent,supplements theoretical gaps,and has certain practical significance.At the same time,it can provide reflections on the merger of the firm in the future and alert it to the importance of auditing the quality of other accounting firms before the merger Investigate and integrate the post-merger firms,focusing on improving the audit quality of the postmerger firms.