In June, 2023, Professor Liu Feng, Director of Accounting Development Research Center of Xiamen University/Department of Accounting of School of Management, and his team Li Shengnan, Assistant Professor of Accounting Development Research Center of Xiamen University/Department of Accounting of School of Management (the first author), Dr. Ye Fan, Lecturer of Xiamen National Accounting Institute, and Professor Yu Dong of Richard Business School of the University of West Georgia, USA collaborated on the topic "Why bigger is not stronger? A perspective on auditor groups and audit quality",published online in Journal of Accounting and Public Policy.
What kind of accounting firm provides higher audit quality? DeAngelo(1981) thinks that the larger the firm, the more clients it has, and the higher the quasi rents it holds, so the better the audit quality. Consistent with this theory, China has long been committed to promoting local accounting firms to become bigger and stronger. Through the merger and acquisition between firms, the scale of accounting firms in China has expanded rapidly. However, whether the expansion of the firm's scale has brought about the improvement of audit quality, that is, whether "bigger" is bound to "stronger" has become an urgent research issue.
From the unique perspective of audit team, this paper further studies the relationship between firm size and audit quality. In China, the audit report must be signed by two auditors. This "co-signing" relationship enables us to divide audit teams within the firm, and each audit team consists of several auditors who cooperate with each other, share interests and share risks. This paper finds that the audit team is not only the executor of the audit business, but also the actual decision maker, which is the primary factor affecting the audit quality: the larger the audit team, the higher the audit quality. This research also means that the accounting firm is not a whole, and the audit quality provided by different audit teams within the same firm is different.
On the one hand, this paper puts forward, defines and identifies the informal organizational structure of the internal audit team of the firm, and further enriches and supplements the relevant literature on auditor size and audit quality by discussing the influence of audit team size on audit quality. On the other hand, existing studies have not reached a unanimous conclusion on whether "bigger" means "stronger". This paper holds that the existence of audit team leads to the loose internal organizational structure of the firm and the high internal agency cost, so it is difficult to improve the audit quality by expanding the scale of the firm ("bigger"). The research results of this paper provide a new perspective for the effectiveness of the policy of "bigger and stronger" accounting firms, and have certain enlightenment significance for regulators and policy makers.
（from https://cas.xmu.edu.cn/en/info/1021/3853.htm ）
