A Study On The Effect Of Non-audit Service On The Audit Quality Of Chinese Listed Companies

Domestic and foreign scholars have launched extensive studies for the effect of non-audit on audit independence,but there has not yet reached a concerted conclusion.Based on the background of today's global development and integration,the market position of the US auditor industry is the separation of audit services from non-audit services,while,China's regulatory authorities have introduced new policies to encourage CPA to expand new business.With the continuous development of the audit service market,non-audit service revenue accounted for the proportion of total revenue gradually increased,whether non-audit services will affect audit independence becomes one of the increasingly important topics in academia.This paper comprehensive summarized the development literature of non-audit service at home and abroad,the relationship between non-audit service and audit independence,and the economic consequences of non-audit service.Then,the article delved into the relationship between non-audit services and audit quality.Furthermore,it analyzed the impact of individual non audit services-internal control audit services on audit quality.In this paper,the classical test model proposed by Frankel and Causholli are used to research the relationship between non audit service fees and audit quality.The first empirical chapter is testing the future non-audit service fees on audit quality.The second empirical chapter is study the impact of internal control audit fees on audit quality.The paper using a sample of firmobservations from the A-share state holding listed companies who disclose their non-audit service fees during 2012-2015 examines evidence in China about whether larger portion and magnitude of non-audit service fees harm auditor independence.The empirical conclusions drawn from this paper are as follows:Firstly,the purchase of future non-audit services by listed companies will affect their audit quality.We introduce the idea that the combination of fee-growth opportunities and a client's willingness to purchase future non audit services represents a source of impairment of auditor independence.Secondly,the study of individual non-audit services-internal control audit services on the impact of audit quality found that the annual audit fees and internal audit fees have generated different economic incentives the auditors.Auditors assess clients' control risk through internal control audit.Based on the assessed control risk,the auditors determine the planned detection risk from which the auditors can decide the nature,timing,and extent of substantive tests to be applied to the financial statements audit.Therefore,given a fixed amount of financial statements audit fee,internal control audit fee may motivate the auditors to put more effort in auditing clients' internal control,leading to a more appropriate determination of the substantive tests.Thirdly,from the supply side,the auditor will accept high auditing fees and undermine the independence of the audit,and they are more likely to tolerate greater earnings management and issue standard audit opinions for their customers.The demand side of the internal control audit service-the company is more willing to pay high internal audit fees and lower annual audit fees to induce auditors to reduce the independence of internal control audit.The observability of internal control audits quality makes it possible to balance the fees between the firm and the auditor.Further research found that the auditor industry expertise can curb the adverse impact of internal control audit fees on audit quality.However,the international "Big Four" have no significant difference effect on the relationship between internal control audits and audit quality.The main contributions and innovations of this paper are listed as follows:First of all,the design and empirical method of this research are scientific and rigorous.Based on the existing literature,this paper constructs the research framework and examines the impact of non-audit services as a whole on the audit quality,furthermore,explores the types of non-audit services purchased by listed companies,and then subdivides the relationship between individual audit services and audit quality.From the research point of view,we first test the relationship between the two,and then analyze the regulatory role of auditors' industry expertise,the international "Big Four" and so on.What's more,this paper enriches and expands the economic consequences of non-audit services.The existing literature on the relationship between non-audit services and audit quality has not been a unanimous conclusion,the important reason may be that the disclosure of nonaudit services related information is very small,so it is difficult to analyze from the perspective of large sample analysis,or the proxy variable selection of non-audit service is not enough accurate,or only consider the impact of non-audit services on the audit quality from the recent year.However,this paper extends the economic dependency hypothesis from the time dimension,believing that the economic correlation between the auditor and the customer may come from the economic income obtained from the customer in the future.Last but not least,the paper enriches and expands the research perspective of internal control audit cost and audit independence.The internal control audit in the non-audit service is directly related to the annual audit,so the knowledge spillover effect caused by the internal control audit should be stronger than other non-audit services.In the context of mandatory listed companies to implement internal control audit in China,directly explore the relationship between internal audit fees and audit quality has a strong policy implications,the findings will provide empirical support for the next step in consolidating or adapting relevant regulations.In addition,this article also explores what type of company is more likely to pay excess internal audit costs this year to compromise audit independence.Meanwhile,the paper verifies the adjustment between the auditor industry experts and the international "Big Four" audits on the relationship between the internal audit fees and the audit quality.