| Internal control over financial reporting(ICFR)audit has attracted significant attentions in recent years since the promulgation of SOX-404.Mandatory ICFR audit has stepped into the stage of integral implementation in the main-board listed companies in Shanghai and Shenzhen Stock Exchange(SSE and SZSE)since 2011.More than half of all listed companies disclose ICFR reports now in China,More specifically,over 90 percent of main-board listed companies disclose ICFR reports,which provides data support for the research of ICFR audit in China.In addition,the CICPA makes annual reports on the types of opinions,fees and other details of ICFR audit.The ICFR audit deserves more deeper exploration since it plays an important role in China.Prior research found that office size,tenure and industry expertise are positively associated with the timeliness of identifying and reporting material weaknesses.Other literature works on the relationship between ICFR audit and financial statements(FS)audit,the cost-effectiveness of ICFR audit,purchase of ICFR audit opinions,etc However,there are few studies on influence factors of ICFR audit quality.In FS audit field,researches present different conclusions on the relationship between client importance and audit quality.On the one hand,economic dependence makes office easier to compromise with important clients,which impairs audit quality.On the other hand,office may treat important clients more cautiously.In addition,the geographic distance between audit offices and clients is another important factor affecting audit quality with no definite conclusion.Geographic proximity reduces the information asymmetry and improves the professional competence of auditors.However,it may impair audit independence.Therefore,this paper studies the influence of client importance and geographic factors on ICFR audit quality at the office level based on researches in the field of FS audit.Meanwhile,this paper discusses how to define and measure ICFR audit quality.We take listed companies that disclosed ICFR audit reports in China during 2014-2017 as research samples and hand-collect information of lCFR clients and audit offices.Also,this paper combines data from DIB,CSMAR,CNRDS and other databases.Ordered logistic regression model and empirical research methods are used to study the influence of office-level client importance and geographic factors on ICFR audit quality.The result is further confirmed by PSM propensity matching,change of variable measurement and sample purification.Our work shows that:(1)audit offices are more cautious in dealing with important ICFR audit clients,and there exists a positive correlation between client importance and ICFR audit quality,(2)client importance works partly through more ICFR audit efforts,(3)the reputation effect of Big4 and good economic condition of audit office’s city play an adjusting role,which makes the positive effect in result(1)more obvious.Moreover,ICFR audit quality is better when(4)audit offices are closer to their clients,(5)or the economic condition of the client’s city is better.Since the influence of office-level client importance and geographic factors on audit quality are mostly researched in the field of FS audit,this paper is the first to study these influence factors on the quality of ICFR audit.Also,this paper provides a novel perspective from the office level during the research.Taking the specific environment of China into consideration,this paper reflects that these factors work differently on the quality of ICFR audit and FS audit,and provides valuable suggestions for ICFR audit supervision in China. |
