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: zhaoyangwang@126.com
Received July, 2013
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)
Copyright © 2013 SciRes. IB
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
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
Copyright © 2013 SciRes. IB
The Research Review of Accounting Firm Transformation
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
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
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-
Copyright © 2013 SciRes. IB
The Research Review of Accounting Firm Transformation
Copyright © 2013 SciRes. IB
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
4.3. Theoretic Framework of Limited
Liability Partnership Has Not Been
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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