Study On Internal Control Quality,Legal Environment And Internal Control Audit Fees

In recent years,the phenomenon of financial fraud at home and abroad has increasingly attracted people's attention.The financial fraud of listed companies may not only cause the company to fall into financial difficulties or even go bankrupt,but also make the credibility of the company's financial statements questioned,and make investors not confident in the capital market.All sectors of society are beginning to realize the importance of internal control.Perfect internal controls can reduce the risks of companies and increase the reliability of financial reports to prevent the occurrence of such events.In order to strengthen the internal control of listed companies,the United States enacted the Sarbanes-Oxley Act in 2002,and Section 404 of the Act requires listed companies to disclose the internal control self-evaluation report in annual reports,and hire firms to audit the effectiveness of internal controls and issue relevant Audit report.After the implementation of the SOX Act,because there was no separate disclosure of internal control audit fees,foreign scholars conducted research on audit fees and found that listed companies paid high audit costs in order to implement internal control audits.According to the specific conditions of listed companies in China,the five ministries and commissions jointly promulgated the basic norms of internal control and its supporting guidelines,requiring listed companies to disclose their internal control self-evaluation reports.And hire a third-party firm to conduct an internal control audit.China has now fully required all listed companies to implement internal control audit,and the number of companies that disclose internal control audit fees in their annual reports has gradually increased.This provides the possibility for research on the issue of internal control audit fees.This article counts the changes in the total audit fees(audit fees for financial statements and internal control audit fees)for listed companies before and after the implementation of internal control audits,and finds that the listed companies that have imposed mandatory internal control audits in 2012 will have a total audit fee increased by 14.31% over the previous year.In the following years,although the overall audit fee growth has slowed,it is still high.At the same time,the standards for auditing fees for internal control audits in various provinces in China vary widely.Therefore,it is necessary for us to analyze more specifically the influencing factors that affect the auditing cost of internal control,thereby reducing the burden of high-level auditing costs on the company's,enabling the firm to improve its internal control auditing methods,improving auditing efficiency,and facilitating supervision of the auditing market by the regulatory authorities.First,this article sorts out the existing related literature,and finds that the internal control quality and the legal environment have an impact on the internal control audit fees.Considering that the time of internal control audit implementation is short and the studies of the internal control audit fees have different conclusions,related issues on internal control audit fees need further study.Based on the literature review,this article analyzes cost-benefit theory,signal transmission theory,and insurance theory,and then uses the internal control information disclosure index in the DIB database to measure the quality of internal control of listed companies,using Wang Xiaolu,Fan Gang et al.2016)The development of market intermediary organizations and the legal environment indicators in the legal system to maintain the market's legal environment to measure the legal environment.Then we use the internal control information disclosure index in the DIB database to measure the internal control quality of the listed companies,and we use maintaining the legal environment of the market intermediary organizations' development and the legal institutional environment compiled by Wang Xiaolu,Fan Gang,etc.(2016)to measure legal environment.Then we select the data of the listed companies of the A-share Main Board of the Shanghai and Shenzhen Stock Exchange for the study period from 2011 to 2016.Through OLS regression,we analysis the relationship between the internal control quality of the listed company and the internal control auditing costs,the relationship between the legal environment and the internal control auditing costs,as well as the relationship between the quality of the internal control,the legal environment and the internal control auditing costs.And we will do research design and empirical test.This article draws the following conclusions and inspirations through research: First,the quality of internal control is significantly and negatively related to the cost of internal control audit.High internal control quality indicates that the internal control of the listed company is well designed and implemented,and it can reasonably and effectively ensure the reasonableness and fairness of the financial report and reduce the risk of audit failure.Second,the high cost of internal control of regional audits with good legal environment.The good legal environment of the regions where the listed companies are located means that the certified public accountants in the region are more prone to litigation than audit failures.At the same time,the supervision of various departments and restriction conditions in good legal environment are stricter.Accounting firms will charge more internal control audit fees in order to reduce the risk caused by internal control audit failures.Third,the improvement of the legal environment will inhibit the negative correlation between internal control quality and internal control audit costs.The good legal environment has a better regional supervision requirement,and the enforcement of the law is more stringent.Enterprises can earnestly enforce the regulations on internal control.This has narrowed the differences in the internal control quality of various companies to a certain extent.The degree of attention accounting firms focusing on the quality of internal control of the enterprise has been reduced.The research in this paper provides a theoretical basis for the pricing of internal control audits.It can also make the management of a company pay more attention to the construction of internal control.