The Impact of Accounting Firm Merger on Audit Quality
|Keywords||accounting firm merger audit quality accounting conservatism|
In May2007, the China association of certified accountants promotes the accounting firms by issuing "opinion about strengthen public accounting firms " and "the accounting firm internal management guide". But in our country, it is still a question whether the accounting firm being bigger means the improvement of audit quality.In theory, the merger of public accounting firms can improve audit quality by enhancing its independence and the auditors’professional competence. Firstly, accounting firm after the merger expands rapidly and its income increases sharply, which reduces its dependence on a particular client. Then it improves the firm’s independence, and thus is good to audit quality. Secondly, the firm after merger is attract to excellent certified public accountants, due to the scale economy, scope economy and so on. Its improvement on material resources and human resources makes it keep up with the development of modern technology, and it ensures the audit quality. Thirdly, Firm after the merger will promote its audit quality because of the consideration of reputation. Last, firm after the merger would improve its audit quality due to the coordination effect of different advantages of firms.In this paper,we measure audit quality by accounting conservatism to see whether CPA firms after merger with obvious improvement in audit quality. Based on three measurements of accounting conservatism, we do this research by multiple regression analysis method. This article does the research with different time window, and at the same time compares the conservatism of all firms the year merger happened to see whether merger enhances audit quality.Our finds is that no consistent evidence supports firm after merger with high audit quality. During time window of a year before and after the merger,the resulte of comparison of conservatism is not so consistent. Only in Givoly and Hayn (2000) measurement model,the results show that firms audit quality improved. And during time window of two years before and after the merger,we can see the same results.In Ball and Shivakumar(2005) and Givoly and Hayn (2000) models, the results show the audit quality of accounting firms is higher after merger. When comes to all the firms,we find no evidence in the improvement of audit quality.The contribution of this paper is as follows:considering accounting conservatism as the measurement of audit quality, it deepens the researches about audit quality from the perspective of the accounting firm merger. This paper finds that merger does not mean the improvement of audit quality. And at the same time, this paper also enriches the research about accounting firm large scale development. This paper tells us the expansion of scale not necessarily means the improvement of audit quality. In addition, the finds of this paper that no consistent evidence shows the merger of accounting firm will be with audit quality significantly enhancing provide empirical evidence for audit industry future development.