The Research Review of Accounting Firm Transformation

doi:10.4236/ib.2013.53B029

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iBusiness, 2013, 5, 138-141

http://dx.doi.org/10.4236/ib.2013.53B029 Published Online September 2013 (http://www.scirp.org/journal/ib)

The Research Review of Accounting Firm Transformation*

Zhaoyang Wang1,2

1Economy& management school of Wuhan university, 2Hunan university of finance and economy, Wuhan/ Changsha China.

Email: [email protected]

Received July, 2013

ABSTRACT

While China’s accounting firms are focusing on purely for the limited liability partnership, the study on the form of

accounting firm organization becomes more and more warmly. We specifically analyzed the research achievement of

accounting firm organization form in Britain and China, and put forward of the prospect and direction for the study on

accountant firm transformation theory in our country

Keywords: Limited Liability Partnership; Accounting Firm; Research Review

1. Introduction

On July 21, 2010, the ministry of finance and the state

administration of industry and commerce administration

jointly issued "the provisional regulation of promoting

the large and medium-sized accounting firms to adopt

limited liability partnership organization form"(ac-

counting [2010] 12), accountant firms in our country

started the tidal wave for the limited liability partnership

transformation. So far, there are 33 transferred account-

ant firms in China excluding branch offices, 111 ones

including branch offices; these are important measures

for public accounting firms in our country to better them-

selves and to meet the internationality.

Since the limited liability partnership implemented,

there are more and more researches on it, through the

overall analysis on research achievements of accounting

firm organization especially limited liability partnership

organization in the last few years, we aim to provide

theoretical guidance for the transformation of public ac-

counting firms in our country, and to promote the inno-

vation of the auditing theory research with the core of

limited liability p artnership organization.

2. Britain and America Research Status

British as the birthplace of certified public accountants

always has a melody of partnership for its organization

form, same with Britain, in the early days of the United

States, the main organization form of accounting firms is

also ordinary partnership, limited liability partnership

organization is widely used in large-scale public ac-

counting firm, law firms and other professional partner-

ship enterprises in the United States since 1996, the four

biggest accounting firms are already using the organiza-

tion form. There is only a few foreign researches on ac-

counting firm transformation, and foreign scholars did

not take special research on accounting firm organization,

the research of its organization form is mainly from the

legal perspective, it’s mainly including distinction be-

tween the legal responsibility system of faults and negli-

gence registered accountant, the impaction on supply and

demand in audit market, investor’s wealth, auditor’s ef-

fort degree and social wealth effect that caused by the

difference of investor’s damage distribution system and

the difference of legal responsibility level of the regis-

tered accountant.

2.1. Researches on Organization form of

Accounting Firm Partnership

The organization form of accounting firm will have an

huge impact on accounting firms and even the whole

audit market. There are some kinds of foreign accounting

firm organization forms as common partnership, Limited

Liability Company, limited liability partnership. Differ-

ent organization form will have different aggregate effect

to audit market. For instance, Alchian and Demsetz

(1972) thought that is more likely for professional

knowledge skilled team to adopt partnership organiza-

tional form, through the analysis on knowledge structure

and psychology factors. Accounting firm itself is with

senior professional and technical staff, and is different

from general enterprise in the human resources, so it is

more suitable for accounting firm to adopt partnership

organization form. Balachandran and Laurence (1999)

use agency theory to make further analysis on the nature

*Humanities and social sciences youth project of the education ministry

(12 YJC790247), Hunan soft science project (2011ZK3025), and Hu-

nan social science fund project (08 YBA15 1)

The Research Review of Accounting Firm Transformation 139

of the partnership organization form in accounting firm

and its effect on accounting firm.

2.2. Researches on Limited Liability Partnership

The main organization form of accounting firm is limited

liability partnership in Britain and America, so the re-

search on accounting firm transferring to limited liability

partnership is not seen much in recent 10 years, and the

study is mainly focused on only the limited liability

partnership. Such as Hamilton, Robert w. (1994) ana-

lyzed the origin of the limited liability partnership, and

further analyzed the organization form of 6 international

accounting firms. Prem Sikka (2008) analyzed the pros

and cons of capital internationalization from the point of

limited liability partnership. Carter g. Bishop made a

comparative analysis for ordinary partnership, limited

liability partnership, company org anization form, and put

forward improvement Suggestions for limited liability

partnership.

2.3. Researches on the Influence on Auditor’S

Legal Responsibility by Accounting Firm

Organization Form

Dopuch and King (l992) used experimental economics

research methods to assess effects on the supply and de-

mand of audit service by three different auditor legal

responsibility systems, including fault legal responsibil-

ity system, strict proof-no-need common fault or deliber-

ate fault legal responsibility system and no legal liability

system. Narayanan (l994) established the audit quality

and auditors legal responsibility model; through the

model analysis, he concluded that because of the propor-

tion legal responsibility system, compared to the joint

and individual legal responsibility, the auditor litigation

costs is more sensitive to the degree of efforts, when the

legal responsibility distribution rules between auditors

and company transferred from proportion legal responsi-

bility to auditors’ joint legal responsibility or auditors’

sole legal responsibility, audit quality will improve.

Schwartz (1998) established a mathematics model of

auditor legal responsibility system, fuzzy necessary at-

tention and auditing standards, through the model analy-

sis, the author reached a conclusion, the auditor effort

degree caused by the fuzzy fault legal responsibility sys-

tem, was significantly lower than the highest degree of

auditor’s efforts in clear legal responsibility system.

Through the method of constructing model, Radhakrish-

nan (l999) test the difference of investor wealth and

auditors effort degree under two different legal liability

system: attention necessary legal responsibility system

and strict attention legal responsibility system. With the

mathematical model, Ewet, Feess and Nell (2000) tested

auditor's legal liability system in the environment of im-

perfect information, litigation costs and is risk-aversion

auditor. The results of the study showed that in the envi-

ronment of imperfect info rmation, litigation co sts and are

risk-aversion auditor, auditor negligence legal system

failed; auditor would positively deviate from any given

kind of criteria. Liu and Wang (2006) established the

mathematics model of company investment decision,

auditor effort degree, audit costs an d company pricing, in

two auditor legal liability systems: negligence legal re-

sponsibility system and strict legal responsibility syste m.

Through the analysis, the authors draw the following

conclusion: auditor efforts level in strict legal responsi-

bility system is the optimal level, but in fault legal re-

sponsibility system is not.

3. Chinese Accounting Firm Organization

Research Status

It can be seen from the organization form of accounting

firm in Britain and America that accounting firm organi-

zation form of foreign mainstream countries transferred

mainly from ordinary partnership to the limited liability

partnership, and the organization form of accounting firm

in our country is mainly limited liability partnership.

Since 2010, the government stressfully promoted ac-

counting firms to the limited liability partnership, and

domestic research about the organization form of ac-

counting firm, mainly concentrated in that how account-

ing firms in our country to select the adaptable organiza-

tion form.

3.1. Researches on the Choice of Accounting

Firm Organization Form

Most scholars believed that the organization form of our

accounting firm should have international convergence,

and pick the choice of limited liability partnership as in

Britain and America. Huang Jieli (2010) thought th at our

limited liability partnership is a new accounting firm

organization form with Chinese characteristics and is

suitable for China's national conditions; Meng Xiaojun,

Yan Hui (2010)) thought that it should be a development

direction for our accounting firms turning to limited li-

ability partnership. And part of the scholars put forward

their own thinking on the promotion of limited liability

partnership in China. Qin Rongsheng (2010) thought that

we should not take "one size fits all" approach to the

transformation of accounting firm, and we should seek a

balance among the benefit protection of partner, creditors,

and the public. Yu Yumiao(2002) thought that China

cannot veto the rights for accounting firms to choose

their organization form independently, while actively

promoting the partnership restructure of accounting

firms.

The Research Review of Accounting Firm Transformation

140

3.2. Researches on the Relationship between

Accounting Firm Organization Form and

Audit quality

An Guangsh i, Yang Shanying (201 1) though t th at limited

liability accounting firm in majority lead ultra com-

mercial behavior produced by some accounting firms,

and infect audit quality; through the empirical test, Yuan

Hongqi (2003) thought that the organization form and

scale of accounting firm have no obvious influence on

audit opinion. Lei Guang yong, Cao Jian (2008) analyzed

and demonstrated the audit leg al system mainly from the

point of the social cost, the model derivation results

showed that different legal punishment ways and loss

measuring models will produce a significantly different

influence to incent auditors, and impact audit quality for

further. By establishing a audit quality qu adratic function

model, Liu Bin, Wang Xingfen, Li Jiaming (2008) ana-

lyzed the influence the externality of audited financial

report bought to audit failure while accounting firms with

different organization form is auditing multiple clients.

3.3. Researches on Limited Liability Partnership

Organization Form

On the basis of the practice of limited liability partner-

ship in Zhong-Yue-Rui-Hua accounting firm, Zhang

Lianqi (2011) deeply analyzed the necessity, basic char-

acteristics, and responsibility configuration of limited

liability partnership and specific procedure of the trans-

ferring. Started from limited liability partnership in

countries as Britain and the USA, Chen Zhisheng (2011)

put forward the suggestion that our limited liability part-

nership should be perfected from division of common

responsibility and proof respon sibility scope among Lim-

ited liability partners, risk fund and professional insur-

ance system, supervision of limited liability partnership

and so on. He Xinrong (2010) thought that limited liabil-

ity partnership aim at providing limited liability protec-

tion to some partners, but not providing effective protec-

tion measures to creditors at the same time, this would

definitely bring theoretical and practical problem to the

development of limited liability partnership which was

increasingly prospering. On this consideration, we need

to adopt related provisions of American legislation, and

give protection to creditors with the principle of fair and

efficiency.

4. Research Prospect of Chinese Accountant

Firm Transformation

Relevant research results above at home and abroad,

provides us with enlightenment of good theoretical basis

and beneficial research methods, and some limitations in

general. The research results abroad mainly started from

the legal responsibility, without special research on the

effects of the audit market caused by the change of or-

ganizational form, and there is no accounting firm of

limited liability company abroad, therefore we cannot

learn from foreign research achievements about account-

ing firm of limited liability company ch anging to limited

liability partnership. And the domestic research mainly

focus on h ow should our country to choose a CPA firm's

organization form, research on the influence mechanism

limited of limited liability partnership to audit market is

almost not involved. At the same time, because China's

accounting firm is large-scale transferring to the limited

liability partnership, there is no specific research on

overall effect of limited liability partnership in our audit

market so far.

4.1. The Influences of Accounting Firm in Our

Country Turning to Limited Liability

Partnership

Our accounting firms running into the transformation of

limited liability partnership as a trend will definitely rise

far-reaching effect on accounting firm themselves and

China’s audit market. The transformation of accounting

firm will provide background support for theory study

from following aspects.

1) The organization form of accounting firm will im-

pact audit market, so does aud it opinion even audit qua l-

ity. Accounting firm organization form mainly contains

three kind, common partnership, limited liability part-

nership, and limited liability company. the choice of or-

ganization form will affect the legal responsibility of

auditor, and then to the audit op inion even audit quality.

2) Accounting firm transferring to limited liability

partnership will affect its audit behavior and audit per-

formance, and because of the mass concentration of

transferring behavior, it will impact audit performance of

whole Chinese market. Most of our accounting firms are

limited liability company, followed by ordinary partnership,

the concentrative transformation since 2010 will have

greater effect on performance of audit market overall.

3) With the transferring to limited liability p artnership,

independence of the certified public accountants, the devel-

opment of accounting firms, and the development of Chi-

nese audit market will gradually match British and Ameri-

can. China's limited liability partnership is in fact the same

as in Britain and America. Our concentrative transferring

to limited liability partnership is showing that the or-

ganization form of China's accounting firm is drawing

close to that of Britain and America, then lay the founda-

tion for the internationalization of our accounting firms.

4.2. The Few Empirical Study of Accounting

Firm Transformation

The study of the theory about accounting firm transfor-

The Research Review of Accounting Firm Transformation

141

mation is not scarce, but there is no empirical research on

how to measure the influence that transferring put on

accounting firm itself and the entire audit market at pre-

sent. We can carry on empirical research from the fol-

lowing aspects.

1) The special opportunity that our accounting firm

transfer to limited liability partnership at present stage

provide us natural testing area to study the impact on

audit market caused by the transformation. Therefore, it

is innovative for us to research the effect in audit opinion ,

audit quality, audit performance before and after the

transformation in an accounting firm.

2) Meanwhile just because our transformation to lim-

ited liability partnership is underway, we can dynami-

cally track different behavior of limited liability partner-

ship accounting firm transferred from different organiza-

tion form. So the researchers can have an innovation in

research data.

3) At present, the domestic empirical research on the

overall effect of transformation cause to audit market has

not been started. we can build econometrics model for

investigation on the transferring effect of accounting firm

in audit market, through empirical demonstration, we aim

to find out the difference of audit quality and audit mar-

ket performance, before and after the transformation.

Then we can provide theoretical and empirical basis for

after- transformation accounting firms and accountants to

behave.

4.3. Theoretic Framework of Limited

Liability Partnership Has Not Been

Established

The theory research and specific operation program

about limited liability partnership is heated at present.

With the gradual completing of accounting firm trans-

formation, there will be more and more researches about

effect caused by limited liability partnership on internal

management of accounting firm, auditor, and the entire

accounting firm. Through the further research on limited

liability partnership organization form, we can provide

new ideas and research direction for the interior man-

agement our accounting firm.

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