Environment Uncertainty?Internal Control Quality And Audit Fees

The audit has the value of authentication and insurance.In the early stage of audit research,scholars only pay attention to the value of authentication.With the issuance of more and more strict administrative penalties for accounting firms,and the establishingment of shareholder's litigation,the insurance value of audit has gradually attracted the attention of scholars.China's related punishment and litigation system was established later.So,at the very beginning,only a little number of small accounting firms were subject to administrative penalties.Investors often had no incentive to seek compensation from investees and accounting firms for fear of trouble.But with the increase of China's regulatory agencies and law enforcement efforts,more and more large accounting firms were punished in China,the event that investors sue the investment unit and the accounting firms for damages is no longer a chance.This situation shows that the risk of loss faced by auditors is expanding.Auditors can not be convinced that when auditing problems arise,the set of "there are inherent flaws in audit and audit can only provide reasonable assurance" can not be fully persuaded.Against this background,auditors can not only consider their the authentication value,but also consider their own insurance value when they make audit pricing.In order to test the audit insurance hypothesis,a lot of scholars conduct an empirical study on the audit fees,some from the angle of the separate litigation risk,but also some from the angle of the overall risk,some consider the internal governance mechanism,some also consider the external governance environment,but little consider the internal and external governance mechanism of enterprises when study the impact of the overall risk on the auditor's pricing behavior,so leave a little space for this study.Audit pricing is made up of audit cost and risk premium.Environmental uncertainty and internal control affect audit pricing by influencing audit cost and risk premium.Environmental uncertainty will make the financial information risks and business risks rise,then the auditor suffered an increased likelihood of reputation and economic losses,so the assessment of the audit risk will be greater.In order to reduce the audit risk to an acceptable level,the auditor must invest more manpower and resources,thus the audit costs will rise as a result.On the other hand,auditors will also increase the risk premium when they expect the increase of audit risk that can not be reduced through their own efforts.So we assume that the environmental uncertainty and audit fees are positively related.The five elements of internal control determine its inhibitory effect on the enterprise's financial information risks and management risks,so this paper assumes that the effective implementation of internal control can effectively alleviate the positive relationship between environmental uncertainty and audit fees.Because the market level in different areas of China is different,so the quality of internal control of the listed company will be different in the different regions.The listed companies that are located in the areas with higher market level often face tougher competition,thus they will attach more importance to the construction and improvement of the internal control system.So we assume that the effect of the internal control in the market areas with higher market level is more obvious.Based on the above considerations,taking the Chinese listed firms between 2011 and 2015 as samples,this paper try to explore the influence of the overall risk caused by the uncertainty of the external environment on auditors' behavior,and the linkage effect between the internal governance mechanism and the external governance environment.Research shows that audit fees will cause the burden of enterprises environmental uncertainty increased significantly,but the effective enterprise internal control can alleviate this positive correlation between environmental uncertainty and audit fees.After take into account the level of market development,we find that internal control in higher degree of market place can effectively alleviate the positive relationship between environmental uncertainty and audit fees.These research confirm the rationality of China's policy of promoting the improvement of internal control quality and market level in recent years.