An Empirical Study of Accounting Firm Scale and Legal Environment Influence on Audit Quality

Abstract

China's overall weak legal system environment and clear regional legal system differences existing side by side provides the research background for us to study the relationship between accounting firm scale, legal environment and audit quality. In this paper, using the data of 2014, under China's unique legal environment background, classify according to accounting firm scale and background, take manageable accrued profit instead of actual audit quality, empirically testify the relationship between legal environment, firm size and audit quality. With the development of market economy and particularity of certified public accountants work, audit quality directly relates to healthy development of capital market. The scale of accounting firms must, therefore, improve information quality as the premise, and large-scale development must also be on the basis of ensured audit quality. In our country, whether there is a difference between large and small audit quality, whether it relates to law environment, whether there are other influence factors, the academia has not yet been determined. And discuss the accounting problems in China shall consider China's national conditions. In general, the rule of law environment is weak in our country. From the angle of region, local legal environment development is not balanced. Will legal system differences in different areas, then, affect different size firm's audit quality? I. ACCOUNTING FIRM SCALE MEASURE In the study of accounting firm scale and audit quality, accounting firm can be divided into N big and not N big dichotomy, which is widely used in the literature at home and abroad. Especially in western developed countries, the division of N big and not N big is very stable. A. Research design 1. Research methods We choose to have clustering analysis with a strong objectivity to test classification results significantly and can comprehensively consider certified public accountants’ indicators to analyze 2014 accounting firm situation. 2. Data collection (1)Data selection indicators In this paper also uses multiple indicators measure in the course of study. (2) Data source Data are from Shanghai stock exchange, Shenzhen stock exchange website as well as Accountants Accounting Firm Comprehensive Information Evaluation in 2014 certified by Chinese Institute of Certified Public Accountants. (3) Descriptive statistics and correlation analysis According to the data in Table 1.1, there is a big difference between accounting firms. Accounting firms’ average market share is only 1.56%, and of all the indicators, in addition to customers and firms accountant number two indicators, the other four indicators are more than the average. Second, we can see that different statistical index system gets obvious accounting firm market share difference. This shows that there is large difference between the sizes of customers, and if the same accounting firm scales measure in accordance with different indicators, there are bigger differences. International Conference on Applied Science and Engineering Innovation (ASEI 2015) © 2015. The authors Published by Atlantis Press 608 Table 1.1 Accounting firm size proportion index information N minimum maximum average standard deviation customer number 64 .064 6.877 1.5625 1.2467 Customer's main business income 64 .013 20.584 1.5625 3.7551 Customer total assets 64 .004 25.072 1.5625 5.2672 Customer equity 64 .010 27.894 1.5625 4.4068 The firm's total revenue 64 .133 17.652 1.5625 3.6029 Accountant office number 64 .622 7.586 1.5625 1.2259 Effective N (list state) 64 Table 1.2 Correlation coefficient of accounting firm scale indicators Client quantity Client business income Total client property Client sharehoder interests Total office income Office accounta nt quantity