Internal Audit Quality And Internal Control Audit Fees

With the development of economy,enterprise operation and management being complicated,internal audit gradually becomes an important component of the internal governance mechanism.Internal audit evaluates internal control and risk management with enterprise,and offers advice to information user in order to add value to the organization.Internal audit and internal control interacts with each other,showing a coupling relationship.In the long period of time,internal audit evaluated and supervised internal control.But before sox issued in 2002,the board didn't disclose the evaluation for internal control.After the incident of Enron and WorldCom financial fraud,internal control receiving unprecedented attention,the United States introduced the Sarbanes-Oxley Act(sox)in 2002.The 404 terms of sox requires enterprises hiring certified public accountants to evaluate internal control.Ministry of Finance and other four ministries of China issued" Basic norms of enterprise internal control" in 2008,as well as issued"Guidelines of enterprise internal control" in 2010.Chinese basic norms and guidelines about internal control require enterprises carrying out internal control self assessment and hiring certified public accountants to evaluate internal control.The era of internal control auditing began.External auditors evaluate internal control and provide external verification in order to increase the external information users' trust degree.Within the enterprise,internal audit based on its natural advantage,supervises and evaluates internal control and provides advices and consultation to improve internal control.Because Internal audit and external audit have a common evaluation objects,will external auditors make use of internal audit' work?Can internal audit quality affect cost and risk of external audit?Is between Internal audit and external audit a substitutional or a complementary relationship?In previous studies,from the perspective of financial statements audit fees,scholars analysed the relationshipof internal audit quality and audit fees of financial statements,but didn't get a consistent conclusion.This paper based on the development of internal control audit in China,with close relationship of the internal audit and internal control,by adopting the theoretical and empirical methods,studied how the internal audit quality affect internal control audit fees.The paper reviewed the definition and development of internal audit,internal audit quality measurements and the development of internal control audit.Then the paper analysed the relationship between internal audit and internal control and the relationship between financial statements audit and internal control audit.on the basis of analysis above,the hypotheses were put forward.Accordingto Chinesse auditing standards no.1411 and the previous research,this paper analyzed the characteristics of the internal audit and measured internal audit quality from three aspects,including internal audit size,internal audit professional competence and internal audit responsibility ranges.And then using the multiple regression analysis method,the paper empirically tested the relationship between internal audit quality and internal control audit fees,as well as the relationship between internal audit characteristics and internal control audit fees.The results show:(1)there are significant negative correlation between internal audit quality and internal control audit fees.Specifically,internal audit with high quality promotes external auditors using the work of internal audit to evaluate internal control,so as to reduce the audit cost;In addition,internal audit with high quality can improve the internal control level and reduce the audit risk,resulting in the reduce of audit fees.(2)there are no significant correlation between internal audit size and internal control auditing fees,but there are significant negative correlation between internal audit professional competence and internal control auditing fees,the stronger the internal auditors' professional ability is,the higher level of internal audit work external auditors can utilize,hence reducing the internal control auditing fees.ln the end,the relationship between internal audit responsibility ranges and internal control audit fees is significantly negative.The research supports external auditors making better use of the internal audit work when external auditors carried out internal control auditing.On the theoretical aspect,from the internal control auditing field,the research adds new evidence to the study about internal audit and external audit fees.In addition,this paper enriches the research about internal control audit fees and promotes the development of theory and practice about internal control auditing.