Keywords: internal control audit quality audit fee 1. Introduction 200 1 12.24 The China Securities Regulatory Commission issued the Q&A No.6 on information disclosure standards of companies offering securities to the public-payment of remuneration to accounting firms and its disclosure, which explicitly required listed companies to disclose the remuneration paid to accounting firms (audit fees) in their annual reports, providing a data source for relevant research on audit fees, and clearly stated that, There are two main types of research on audit fees in China: one is to directly study the influencing factors of audit fees, and the other is to study the influence of corporate governance, earnings management, auditor change, customer risk and the characteristics of accounting firms on audit fees respectively. The existing research on which factors will affect audit fees is enough, even if different samples are used to draw the same conclusion, it is of no substantive significance. Therefore, it is necessary to deeply study the influence of a certain factor on audit fees. However, there is little research on the relationship between internal control and audit fees in China. Based on the empirical data of China A-share listed companies in 2007 and 2008, this paper studies the influence of audit quality on the relationship between them.
Two. Literature Review (1) The demand for voluntary disclosure of internal control assurance reports by foreign literature companies comes from information asymmetry and agency cost between managers and external investors (Healy and Palepu, 200 1). Users of financial reports believe that the disclosure of internal control verification reports can promote the company to improve the internal control system, strengthen the supervision of the internal control system, and provide useful decision-making information for investors (Hermanson, 2000). Because the management and the company have the responsibility to ensure the authenticity of information disclosure, and the internal control verification report often contains the statement of the effectiveness of internal control, the disclosure of the internal control verification report increases the legal responsibility of the management and the company, but it can send a signal to external users to distinguish the quality of internal control of the company from other companies. The larger the company, the faster the net profit growth, the slower the sales growth, the more diligent the auditor and the higher the shareholding ratio of the organization, and the more likely it is to voluntarily disclose the internal control verification report (Bronson, 2006). According to the signal transmission theory, the management of high-quality companies has the motivation to transmit high-quality signals (such as better performance, better internal control and risk prevention information) to investors in time, and adopt strategies such as hiring high-quality auditors to increase the credibility of information disclosure, thus affecting investors' investment decisions and eventually raising the company's share price.
(2) The higher the quality of internal control in domestic documents, the more likely the company will disclose the internal control assurance report provided by auditors for the purpose of signal transmission (Lin Bin and Rao Jing, 2009). In the process of disclosing the internal control verification report, there is an obvious disclosure management behavior of "reporting good news without reporting bad news", and the board of directors admits that the companies with major defects in internal control have not disclosed the internal control verification report; All companies that disclose the internal control verification report recognize the self-evaluation report of the board of directors. All these indicate that the higher the quality of internal control, the more likely the company will disclose the internal control verification report (Lin Bin, Rao Jing, 2009). The information disclosure in the internal control verification report can reflect the quality of internal control to some extent (Yang Deming, 2009). Looking at the above research at home and abroad, they agree that voluntary disclosure of internal control verification reports often means that the actual internal control quality of the company is high. Therefore, whether to disclose the internal control verification report represents the quality of the company's internal control, and the internal control variable is designed as a binary dummy variable. The disclosed internal control verification report is taken as 1, and the undisclosed internal control verification report is taken as 0.
Three. Research Design (I) Theoretical Analysis and Hypothesis It is proposed that theoretically, low-quality internal control leads to higher audit fees in two aspects: when the quality of internal control is low, auditors need to increase audit investment, including testing and changing audit procedures; Partners spend time discussing with account management; Spending energy to decide whether an internal control defect should be classified as a major defect or an important defect, so auditors will charge higher audit fees; When the internal control quality is low and the internal control risk is high, it often means that the overall risk level of the company is high, so the litigation risk of the audit business is also high, and the auditor will charge a part of the risk premium (Raghunandan and Rama, 2006; Hogan and Wilkins, 2008). The more serious the company's internal control problem is, the more the audit cost will increase. Therefore, this paper puts forward the following assumptions:
Assumption: The higher the quality of internal control, the lower the audit cost. In recent years, there have been a series of cases of audit failure in China, and the state has also taken a series of measures to strengthen the supervision of the audit industry. Therefore, when the internal control quality of the audited entity is low, the auditor faces higher audit risk. At this time, domestic accounting firms are more cautious in the practice process, and will not reduce the scope of audit procedures and substantive tests, and the audit time will cost more, so the audit cost will be higher; When the internal control quality of the audited entity is high, the audit risk faced by the auditor is low, so there is an incentive to reduce the audit procedures and substantive test scope, thus reducing the audit cost. However, the big four have enjoyed a high reputation in the world for a long time, which has created a reputation premium for them. Therefore, the Big Four attach great importance to maintaining their long-standing good image in the audit market. In addition, the fierce competition they face in the domestic audit market is far lower than that of domestic accounting firms, so they pay more attention to controlling and preventing audit risks. Even if the internal control quality of the audited entity is high, it will not reduce the scope of audit procedures and substantive tests, and will still carry out audit business in strict accordance with audit standards and corresponding work norms. Therefore, audit quality will have a significant impact on the relationship between internal control and audit fees.
(II) Data Source and Sample Selection Whether the listed company discloses the internal control verification report, the number of holding subsidiaries and the data of the company's location are all from the annual report disclosed by the listed company, while the annual report mainly comes from Juchao Information Network, and the annual report not found in Juchao Information Network comes from Shanghai Stock Exchange and Shenzhen Stock Exchange, and the rest data comes from the national Taian database. This paper takes A-share listed companies in Shanghai and Shenzhen stock markets in 2007 and 2008 as research samples. On this basis, financial and insurance listed companies and listed companies that did not disclose or pay audit fees to domestic and foreign firms in any year within two years were deleted, and finally 1749 sample data were retained.
(3) Model establishment and variable definition This paper tests the hypothesis by constructing the following model:
infie = 1 control+2 control * big 4+3 in asset+4oa+5 inventory+6 receivable+7 subcom+8 year+9d 1+ 10 D2+ 1 D3+ 12d 4。 ū 1)。 The existing research results show that, other things being equal, the larger the scale of listed companies, the more their economic business and accounting matters, and the higher their inherent risks and risk control level. Accordingly, certified public accountants need to expand the scope of audit testing and increase the audit time; At the same time, the more audit adjustments CPA faces, the larger the scale of listed companies, the higher the audit fees (Wu Lina, 2003). The more complex the economic business, the higher the audit cost. Generally, the number of holding subsidiaries is regarded as a substitute variable for the complexity of economic business, which is positively related to the audit cost (Zhu Xiaoping and Yu Qian, 2004). The greater the operational risk of customers, the higher the litigation risk of auditors, so the higher the audit cost. The ratio of accounts receivable and inventory to total assets and return on total assets can be used as alternative variables of auditor's risk, and the ratio of accounts receivable and inventory to total assets is positively related to audit cost. The bigger the accounting firm, the better the brand, the higher the professionalism, professional quality and professional reputation, the higher the audit quality and the higher the audit cost. Therefore, the audit fees charged by the international "Big Four" are relatively high. Generally speaking, the price level in economically developed areas is higher than that in underdeveloped areas, so the audit fee standard based on the price level is also higher in economically developed areas than in underdeveloped areas. In order to study the influence of regional factors on audit fees, this paper uses the research conclusions of Lu Zunhua and others to divide all regions in China into five categories: (1) Shanghai, Beijing, Tianjin, Guangdong and Zhejiang; (2) Fujian, Jiangsu, Shandong and Liaoning; (3) Heilongjiang, Jilin, Xinjiang, Hainan, Hubei and Hebei; (4) Anhui, Sichuan, Guangxi, Chongqing, Hunan, Jiangxi, Inner Mongolia, Henan, Shanxi, Yunnan and Tibet; (5) Guizhou, Qinghai, Gansu, Ningxia and Shaanxi. Therefore, this paper selects INASE (T company size), ROA, inventory, accounts receivable (auditor risk), Subcom (complexity of economic business), yea(r annual variable), D 1, D2, D3 and D4 (regional factor) as control variables. Four. Analysis of Empirical Results (I) Descriptive Statistics From Table 2, the disclosure of internal control information of listed companies needs to be further strengthened. For example, the average value of control right is 0. 170, which reflects that only 17% of listed companies disclose internal control assurance reports, and most listed companies are unwilling to disclose internal control assurance reports. In statistics, it is also found that this conclusion is consistent with that of Lin Bin and Rao Jing, and there is an obvious disclosure management behavior of "reporting good news but not worrying" in the disclosure of internal control assurance reports of listed companies. This is reflected in the following aspects: (1) All companies whose board of directors admitted that there were major defects in internal control did not disclose the internal control verification report; All companies that disclose the internal control verification report recognize the internal control self-evaluation report of the board of directors. In the sample data of 2007 and 2008, the operating performance of listed companies is quite different. The largest ROA is st Yanhuang, which reached 95.9% in 2008, and the smallest is ST Danhua, which was -85.9% in 2007. The ratio of inventory and accounts receivable to total assets varies greatly among listed companies. The largest proportion of inventory in total assets is Rong Sheng Development, which reached 83.5% in 2007, while the inventory of 35 companies is almost zero. By consulting their annual reports, it is found that these companies are either enterprises in power, transportation, software and other industries. Due to the nature of the industry itself, the inventory is almost zero. Either because the company is in a state of rectification and suspension of production, and there is no production and business activities for a long time. The ratio of accounts receivable to total assets also varies greatly among listed companies. The largest sample value is 94% of Zhongjiang Real Estate, while the ratio of 29 sample companies is 0. The reason is that most of these companies are in a state of suspension of production or restructuring, and there is no production and business activities for a long time. Other companies have replaced assets with more accounts receivable due to large-scale asset replacement, or transferred all accounts receivable to specialized accounts receivable collection companies. Poly Real Estate has the largest number of holding subsidiaries, with 66 holding subsidiaries, while 68 sample companies have no holding subsidiaries. The four major companies providing audit services account for 5% of the total sample. Although this ratio is low, the customers of the four major audit services are basically customers with very large assets. 37% of the sample companies are registered in Shanghai, Beijing, Tianjin, Guangdong and Zhejiang, 18% in Fujian, Jiangsu, Shandong and Liaoning, 12% in Heilongjiang, Jilin, Xinjiang, Hainan, Hubei and Hebei, and 23% in Anhui, Sichuan and Hebei. Table 3 is the correlation coefficient matrix of the main variables. From (Table 3), it can be seen that the absolute value of the correlation coefficient between the explanatory variables and the controlled variables of the model is less than 0.22, indicating that there is no serious multiple * * * linearity problem in the model.
(II) Regression analysis (Table 4) gives the regression results of the model. As can be seen from Table 4, there is a certain negative correlation between internal control and audit fees, and audit quality (Big4) has a significant impact on the negative correlation between internal control and audit fees. In the case of low audit quality (not the big four audits), the higher the quality of internal control, the lower the corresponding audit cost (the internal control coefficient is significantly negative); In the case of high audit quality (four major audits), the negative correlation between internal control and audit fees is obviously weakened (intertemporal coefficient 2 is significantly positive). This shows that audit quality has a significant impact on the negative correlation between internal control and audit fees. With the improvement of audit quality, the negative correlation between internal control and audit cost is weakened. Theoretically, there is fierce competition in the audit market in China at present, especially in domestic accounting firms. Therefore, domestic accounting firms hope to win customers by reducing audit fees, mainly by reducing audit procedures and substantive testing scope. In recent years, a series of audit failure cases have occurred in China, such as Zhongtian Qin's audit failure case, which makes domestic accounting firms pay more attention to controlling audit risks. Therefore, when the internal control quality of the audited entity is low, the auditor faces higher audit risk. At this time, domestic accounting firms are more cautious in their practice and will not reduce the scope of audit procedures and substantive tests, so the audit cost is higher; When the internal control quality of the audited entity is high, the audit risk faced by the auditor is low, so there is an incentive to reduce the audit procedures and substantive test scope, thus reducing the audit cost. The Big Four have enjoyed a high reputation in the world for a long time, and the audit services they provide are considered as symbols of high-quality audit services, and their good reputation has created a reputation premium for them.
Therefore, the Big Four attach great importance to maintaining their long-standing good image in the audit market. In addition, the fierce competition they face in the domestic audit market is far lower than that of domestic accounting firms, so they attach great importance to controlling and preventing audit risks. Even if the internal control quality of the audited entity is high, it will not reduce the scope of audit procedures and substantive tests, and will still practice in strict accordance with audit standards and corresponding work norms. At present, some domestic studies (Liu Feng and Zhou Fuyuan, 2007) do not think that the Big Four can provide higher quality audit services than domestic accounting firms, and think that joint venture and foreign-funded firms may have a tendency to reduce the audit quality in China (formerly Hongqi and Li Haijian, 2003). The regression results of this paper just show that when the internal control quality of the audited unit is high, domestic accounting firms tend to reduce the scope of audit procedures and substantive tests, but this tendency has not been found in the four international universities. It can be said that the quality of audit services provided by the four major international accounting firms is higher than that provided by domestic accounting firms.
Verb (abbreviation of verb) Conclusion Based on the annual data of A-share listed companies in Shanghai and Shenzhen stock markets in 2007 and 2008, this paper reveals the negative correlation between internal control and audit fees. It is found that the improvement of internal control quality helps to reduce the audit fees charged by accounting firms, but the audit quality has a significant impact on the negative correlation between them. The higher the audit quality, the weaker the negative correlation between internal control and audit fees. It has been verified that the quality of audit services provided by the four major international accounting firms is higher than that of domestic accounting firms, and excessive competition in the domestic audit market is an important reason for the low audit quality of domestic accounting firms. In order to further develop and prosper China's audit cause and improve the audit quality of domestic accounting firms, we must solve the problem of excessive competition in the domestic audit market. Therefore, this paper suggests that China should cultivate an oligopoly audit market as soon as possible, reduce the number of accounting firms and avoid excessive competition. What needs to be further pointed out is the limitations of this paper. Due to the lack of annual audit expense data of many listed companies in the national Taian database, this part of sample data is excluded, which may affect the persuasiveness of this conclusion to some extent.
References:
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Source: Accounting Newsletter