Study On The Influence Of Internal Control On Audit Fees

After the "Enron event", the United States Congress quickly passed by the Sarbanes-Oxley Act of 2002 (SOX), requiring management and certified public accountants to evaluate the effectiveness of the internal control on a regular basis. In October 2003, The International Auditing and Assurance Standards Board (IAASB) issued standards "International Standards On Auditing No.315-Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment" and "International Standards On Auditing No.330-The Auditor’s Responses to Assessed Risks", proposing the risk-oriented audit mode. In February 2006, the Ministry Of Finance in China also issued new auditing standards, putting forward clearly that when certified public accountants perform an audit, they should fully identify and assess the possibility of material misstatement of their clients’ financial statements, and determine the nature, timing and extend of further audit procedures according to the result of risk assessment. Issued in 2008 and formally implemented in July 2009, "Basic standard of enterprise internal controls" ("basic standard") stipulated that Chinese listed companies should evaluate the effectiveness of internal control, disclose the corresponding self-assessment reports, and employ certified public accountant with qualification for securities and futures to audit the effectiveness of internal control. In August 2012, the Ministry of Finance and the China Securities Regulatory Commission jointly issued an announcement titled "the listed company (main board) partial classification implement internal control standard" explicitly stipulating the schedule of the listed company (main board) on the implementation of internal control audit:in 2013, a full public disclosed audit report on internal control for the previous year of all the central and local state-owned listed companies would be required, in 2014, all of the listed companies (main board) must disclose an internal control audit report at the same time while publicly disclosing a fiscal year financial statement. Under the background of the above regulations, this paper researches the influence between audit fees and internal control of the family business.Based on the data disclosed by a-share main board listed family companies from 2012 to 2014 on Shanghai and Shenzhen Stock Exchange,-the author studies the relationship between internal control and audit fees from three aspects:whether to disclose internal control audit report, whether to disclose deficiencies in internal control and the quality of internal control. The results show that the quantity and proportion of disclosure of internal control audit report is on the rise after the mandatory disclosure policy coming into effect, suggesting that the disclosure of audit reports of listed family companies will be affected by relevant policies; the disclosure of internal control audit reports and internal control deficiencies is significantly positive correlation with audit fees, i.e., family listed companies disclosing internal control audit report or internal control deficiencies will pay higher audit fees; the quality of internal control is significantly negative correlation with audit fees, i.e., comparison with the poor quality of the internal control of the family business, the higher pay less.The paper is divided into six parts:The first part, introduction. This chapter mainly introduces the purpose and significance of topic selection, content of this research and structure framework, methods and possible innovation points.The second part, literature review. This chapter introduces the related literature at home and abroad based on the relationship between audit fees and three aspects (i.e., the disclosure of internal control,internal control quality and internal control audit) Finally a brief review of the literature is made.The third part, the system background and theoretical analysis. This chapter firstly introduces the changes of the internal control system in our country and United States, and then analyzes the relationship between internal control and audit fees based on the principal-agent theory, signaling theory and information asymmetry theory.The fourth part, the research design and model building. First of all, according to the existing literatures and theoretical analysis, the paper puts forward three basic hypothesis:hypothesis 1:the companies disclosing the internal control audit report pay more audit fee than those not; Hypothesis 2:the company disclosing the internal control deficiencies pay more audit fee than those not; Hypothesis 3:the higher the quality of internal control of listed companies, the lower audit fees they will pay. Secondly, sample and data sources, the A shares in Shanghai and Shenzhen stock exchange main board listed family companies during 2012-2014 data is chosen as the research sample. Data including the audit fees of listed companies, disclosure of internal control, internal control index and financial data, among which the audit fees, the disclosure of internal control and financial data are from CSMAR database, internal control index is derived from the DIB internal control and risk management database. Family enterprise information mainly comes from the CCER database, consulting the DIB internal control and risk management company basic information in the database and Forbes Chinese version. Besides, it provides the definition of variables. Explained variables are selected from family annual audit fees of listed companies:Explanatory variables include: whether to disclose the internal control audit report, whether to disclose internal control defects and the internal control quality. Control variables are:the company scale, the scale of accounting firms, the type of audit opinion, asset-liability ratio, total assets turnover ratio, accounts receivable, accounts for the proportion of total assets, inventory to total assets ratio, return on total assets and liquidity ratio.The fifth part is about empirical analysis. First of all, this chapter, respectively conduct descriptive statistical analysis, Pearson correlation analysis and regression analysis from whether to disclose the internal control audit report or internal control defects and the internal control quality three aspects, and then use operating income instead of total assets and introduct control variable firm change robustness of empirical results inspection respectively and the results did not change.The sixth part is about research conclusion, Suggestions and limitations. First of all, the research results are summarized. Secondly, it puts forward Suggestions for the perfect family listed companies corporate governance structure, optimizing the family enterprise internal audit. Finally, it conclude the limitations of this study.