Audit Distance,Internal Control Quality And Audit Fees

Audit fee refers to the remuneration for the certified public accountants providing professional services to customers.It not only embodies the mutual relationship between supply and demand of audit services,but also directly determines the independence of the CPA and audit quality and other output characteristics.Scholars want to find the impact factor of audit pricing with concerning this hot research issues from the perspective of the characteristics of supply and demand sides.With the literature about geographical preference in the field of financial accounting academic increasing and the situation of auditor choice in geography preference,this article focuses on the external relation variables between the supply and demand sides of audit pricing——audit distance,analysis the relationship between audit distance and audit fees using information asymmetry and principal-gent theory,finally tested this relationship empirically.This paper combines the methods of normative and empirical research.Firstly,apply the theory of information asymmetry and the principal-agent theory,analysis the internal relationship between the internal control quality and audit fees,audit distance and audit fees theoretically,and find that: the quality of high internal control reduces the agency cost of the listed companies,and then affects the auditor’s pricing strategy and ultimately reduces the audit cost;combined with the rising cost of audit distance,the hypothesis that audit cost increases with audit distance is put forward,in the case of market competition,the negative hypothesis of audit distance and audit cost is put forward;considering the characteristics of the internal control quality and the audit distance under the same asymmetric information direction,the assumption of negative correlation between them is proposed.In the empirical part,this paper selected listed companies from 2013 to 2015 Dibo internal control database with the internal control quality(not—zero)as a sample,we obtained 6885 observations after screening.The variable audit fee is measured by the natural logarithm of the external audit cost of the listed company;the quality of the internal control variables is from the Dibo database;audit distance is measured by the natural logarithm of the geography distance added one;we select the control variables such as audit delay,property right nature,total assets size,asset-liability ratio,asset return rate,company growth rate,accounts receivable ratio,firm reputation,regional factors and firm change.After all setting,we carry out the multiple linear regression based on the model set by this paper.At last we make several regressions to test the change and significance of coefficient after the sample grouped by several audit fees influencing factors(ownership,firms change,big4,cbig10,list age).The results of the study show that:(1)There is a significant negative correlation between the internal control quality and the audit fees in the sample,that is to say,the higher the internal control quality of the customer,it helps more for the auditor to reduce the audit fees.And this negative correlation is evidently reflected in the high quality internal control group,the low quality internal control group does not have the representativeness of this conclusion.This means that when auditors define customer companies for low-quality internal control,the audit fees will no longer be affected by the low level of quantification,it increases directly;(2)When other conditions are unchanged,there is a negative correlation between the audit distance(between the client company and the firm)and the audit fees,that is to say,under the same conditions,the farther the auditor is from the audited unit,the audit fee is reduced.This means that in the audit market,there may be a CPA to break local protection for remote clients to reduce the audit fee "Lowballing" phenomenon.(3)audit distance is negatively related to the quality of internal control under restrictions of other conditions,which means high internal control quality enterprises are biased towards the nearest choice of accounting firms,make the best of its own good quality information;(4)Grouped regressions have several conclusions :the negative correlation between internal control quality and audit fee are both remarkable in the state-owned and non-state owned groups,it is the same to the relationship between audit distance and audit fee;the correlation between audit distance and audit distance is not changed whether the firms changed or not,big4 or not,cbig10 or not,but the firms which is top 10 in China tend to charge less audit fees to remote audit customers;the auditor has a special pricing principle for the customers listed in the first two years and generally charges a higher charge for it.Based on the conclusion of this article,this paper puts forward relevant suggestions on enterprises,supervision departments and accounting firms respectively.The innovation of this paper is to explore the influencing factors of the audit fees besides the auditor and the client——the audit distance to show the external relationship between them.The external relationship between the auditor and the customer,that is,the distance between the auditor and the customer,that is,the distance between the auditor and the customer.The previous researches are based on the internal relationship between the auditor and the customer as the audit cost supply and demand side.Combined with internal control quality which is related with information asymmetry,this paper studies the change trend of audit expenses under the dual influence of audit distance and internal control quality.