The Effect Of Internal Control Weakness And Its Remediation On Audit Fees Of Subsequent Years

As the monitor, evaluator and auditors of the listed company financial information, Certified public accountants play an important role in the status audit supervision system. Audit pricing is the link between the accounting firms and clients, and the amount will affect the economic interests on both of them. This paper using both theoretical analysis and empirical research deeply investigating the relationship between internal control weakness and audit fees. This paper based on the internal control attestation reports and related financial data of2009-2012disclosed by listed companies in Shanghai and Shenzhen Stock Exchange, sorted out the logical relationship between internal control weakness and audit fees. Through descriptive statistics and regression analysis of multiple linear regression model, we can safely draw the following conclusions:Internal control weakness make the listed company face relatively higher audit fees in the subsequence annual. Even the internal control weakness was remediated in the subsequent annual, Audit fees after remediation of internal control weaknesses still stay in a relatively high level. Audit fees will raise significantly when internal control weakness occur.While when the internal control weakness is remediated, the audit fees does not fall in the same degree. That is to say Audit pricing is sticky.The paper is divided into five partsChapter1focuses introduction. In this part, the background, significance briefly train of thought and framework of the paper are introduced. The innovation points are also put forward in this chapter.Chapter2introduces literature review. It is based on the dimension of audit fee, the influence on audit fee caused by internal control and internal control weakness.Chapter3introduces theory basis and hypothesizes. First of all, this paper introduces the institutional background of audit fees and internal control. Secondly, Basis theory related are introduced, such as internal control weakness, internal control risk and risk oriented auditing. On the basis of above analysis, this paper deeply goes into the factor that influences the audit fees from the perspective of Cost-benefit theory and Theory of the risk premium. All the analysis provides substantial support for the empirical study followed.Chapter4focuses on empirical research. It is the main body of this paper. This part is divided into three parts:1.The research on influence of internal control weakness on the audit fee of the next year of internal control weakness occurs.2.Special consideration on internal control weakness’s influence on audit fees two years subsequent to internal control weakness obscured.3. Research on the relationship between audit fees and internal control weakness when remediation happened.Chapter5analyses the countermeasures aiming at the problems which the empirical research reveals and the limitation of the research. Firstly, comprehensive analysis is carried on aiming at the conclusions which chapter4has proposed. According to the results of the analysis, remediating firms continue to pay, in the year of remediation as well as one and two years subsequent to remediation, a significant audit fee premium compared to films that have never disclosed internal control weakness. The proposal of how to further regulate internal control disclosure is discussed as well. Secondly, this chapter points out the limitation of the paper and future research direction of this kind of research.