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Auditing (A307)


audit firm merger; auditor changes; Big 4 firm; Chinese audit market.


  1. Charles J. P. Chen
  2. Xijia Su,
  3. Xi Wu




    study examines auditor-client relationships following the high-profile merger
    of a local Chinese audit firm, Da-Hua CPAs, with a Big 4 firm, Ernst &
    Young, to create EYDH in early 2002. Of the 46 domestically listed clients
    Da-Hua had at the time of the merger, 30 switched to other audit firms during
    2002–04. This large loss of clients could be attributed either anecdotally to a
    lack of post-merger managerial and cultural congruence, or to a lack of demand
    for high quality audits. We examine 11 _13_ switching clients in 2002 _2004_ as
    early _late_ switchers. Although our archival analyses suggest that the
    switching decisions of early switchers are more likely to be explained by
    common factors such as changes in client structural characteristics,
    post-merger client portfolio management, and client-auditor friction over
    accounting treatments, late switchers do not differ from late non-switchers in
    terms of these factors. However, we find some time-serial evidence that late
    switchers follow their audit partners to a local audit firm mainly for greater
    discretion over financial reporting. Further, semi-structured focused
    interviews reveal that late switchers found it difficult to adapt to EYDH’s
    practices which, in their view, were less cooperative and too risk aversive.
    Overall, the results of our case study are consistent with the notion that
    clients switch from Big 4 to local firms mainly for more lenient audit




    Vol 29, Nomor 01 CD, Tahun 2010


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