Based on a theoretical framework, this paper identifies three factors determining the effect of accounting firms in changing their organization forms, from limited liability corporation (LLC) into limited liability partnership (LLP). Besides the increase of auditors legal liability, the level of clients business risk and auditors initial audit quality before transforming also affects the magnitude of changes in audit quality and audit fees. Using Chinese A share data from 2007 to 2015, after controlling for clients business risk, evidence supports the prediction that the transformation of organization form has a more significant effect on median small sized audit firms, which generally have lower initial audit quality. Further analysis shows that the transformation increases the market share differences between Big10 and those median small sized audit firms and that the heterogeneous effect on audit fees can partially explain the relative changes of audit market share.