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Transformation of Accounting Firms, Legal Risk and Audit Quality |
JIANG Yaoming,TANG Yanjun |
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Abstract Based on current event of accounting firms’ transformation to “special and ordinary partnership organizing form” in China motivated by Ministry of Finance and Administration of Industry and Commerce, the paper selects A stock listed enterprises from 2008 to 2013 and their major accounting firms as samples and conducts dynamic analysis of the effect of transformation of accounting firms on audit quality from the perspective of legal obligation of the auditors. The empirical results show that the overall audit quality of the accounting firms with eligible securities is significantly improved after the complete transformation to special and ordinary partnership organizing form; the transformation from limited liability system to special and ordinary partnership organizing form enhances the legal liability of the auditors and improves their risk awareness at the same time. The specific implications are followed: after the transformation, the tolerance to the management of discretionary accruals of the auditors for high-risk clients decreases and the auditor tend to give non-standard auditing suggestions to high-risk clients. Therefore, the system transformation of accounting firms to special and ordinary partnership organizing form in China has achieved remarkable results and it will be conducive to the sustainable development of China’s CPA industry to be stronger and better.
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Received: 24 July 2015
Published: 15 December 2015
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Corresponding Authors:
JIANG Yaoming
E-mail: jianghhym@163.com
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