The Research Of The Impact On Audit Pricing About The Effectiveness Of Internal Control

Audit pricing is monetary measure of audit service, reflecting the quality of audit service,which also affects the independence of CPA. So audit pricing is a major concern of auditstudy. Since1980s, Simunic first putting forward audit pricing model, scholars carried outextensive research about influencing factors of audit pricing. Enron and a series of astonishingfinancial fraud cases, which broke out in the United States in the early twentieth century,caused tremendous question of the effectiveness of internal control. In order to rectify theorder of capital market and rebuild public confidence in capital markets, Unite States enacted"Sarbanes-Oxley Act" in2002. It requires management section should disclose the assessmentof internal control over financial reporting along with the periodic reports. Meanwhile, theAct requires that the internal control should be audited by registered CPA. So it makes theinformation of internal control available. Foreign studies about the relationship between theeffectiveness of internal control and audit pricing come to consistent results.In2001, Chinese Securities Regulatory Commission required that listed companies inChina clearly disclosed the remuneration paid to the firm in the accounting report. It providedfavorable conditions for empirical study of audit pricing. After ten years development, studyof audit pricing is more and more mature. However, there is still a long way of the study ofthe impact of internal control to audit pricing. Study about this issue gradually increased since2008, when Internal Control Basic Standard was issued. Some scholars use the information ofinternal control disclosured by listed companies to examine the impact of internal control toaudit pricing, but the results are not consistent. Self-evaluation report of internal control cannot meet requirements may be the reason leading to the situation.Combining with the background of China’s internal control, more relevant informationof internal control can be obtained because that self-evaluation report of internal control ismore standard. This paper makes assumptions based on theory analyzing, and carries out anan empirical study based on the manufacturing data from2009to2011. The research foundthat the effectiveness of internal control had been improved under the guidance of new policyand the effectiveness of internal controls of the previous year is a major factor thatsignificantly affects audit pricing.In this paper, we choose the internal control as the breakthrough point, to study the factorinfluencing audit pricing. This study enriches the research of influencing factor of auditpricing. Meanwhile, it may provide useful empirical evidence and relevant information for thegovernment departments to restrain the unfair competition and regulate the development ofthe CPA industry. This paper use the information obtained from the self-evaluation report toevaluate the effectiveness of internal control, which is the innovation of this paper. However,the method has the limitation. It may be lack of objectiveness. Meanwhile，the InternalControl Supporting Guidance was applied from2012, so only the data of2012may notprovide sufficient evidence to determine the relationship between the effectiveness of internalcontrol and audit pricing under the new policy.