AAA Spark Meeting of the Regions

A New Wave of Talent: The Effect of Mandatory Local CPA Requirements for Big 4 Partners in China

• In Event: DSFI - Session 3 (Experimental)

Abstract

This paper examines the effects of a recent regulatory intervention in China that affected Big
4 partners’ assignments and their clients’ audit quality. In 2012, the Chinese Ministry of Finance mandated
that 80% of Big 4 engagement partners must have local CPA requirements by 2017, but this regulation did
not affect non-Big 4 firms. During a 14-year period surrounding the implementation of the regulation, we
examine various outcomes at both the partner and client levels between Big 4 and other audit firms. We
document that the Big 4 complied with the requirements by promoting local talent to junior partner roles
for new clients, but we do not observe any negative effects on the audit quality of the Big 4 or externalities
for other audit firms. Overall, our findings suggest that the move to local CPA requirements achieved its
intended objective of developing local human capital without harming audit quality.

Authors

• Suzanne Mullinnix, AAMVA

• Pietro Andrea Bianchi, Florida International University

• Lin Liao, Southwestern University of Finance & Economics

• Miguel A. Minutti-Meza, University of Miami

• Yini Wang, University of Miami