Internal Control Deficiencies, Legal Environment And Internal Control Audit Fees

In recent years, a series of foreign financial fraud cases has caused huge losses to investors. In order to restore the public’s confidence in the stock market and enterprises, the United States enacted the Sarbanes Act that requires the management to evaluate the enterprise internal control and give a report on it. Moreover, the CPA is going to attest the internal control and issue a report on it. In comply with the trend of evaluation on internal control, China has issued 2 guidelines in 2010, including Internal Control Evaluation Guidelines and Internal Control Auditing Guidelines.Since 2011, foreign listing Corporations are required to implement internal control audit. Since 2012, all the listed company on the main board have to carry out the policy.With the increase disclose of audit fees in listed Corporation,which provides more convenience for the research of this paper. The imperfection of internal control can not effectively avoid risks, which increase the possibility of business failure.Especially the major loopholes indicate that the business control environment is invalid. Therefore, the Certified Public Accountants have to expand the audit procedures to reduce the risk the failure of audit in the audit plan, thus will usually charge higher audit fees. This paper researches the influence of different types of defects on internal audit fees, which will exert a certain practical significance for the internal control audit pricing. At the same time, the CPA’s audit risk is determined by the external supervision as provincial legal environment. In those areas with wholesome legal regimes and supervision and strong legal consciousness, the listed company are more easily accused by the dis-satisfactory of auditing results. Secondly,listed companies suffer from litigation arbitration and penalties for violations are more likely to cause the attention of investors and regulators. In consideration of the interests of all parties and regulatory requirements, the Certified Public Accountants increase the scope of the audit to reduce the risk of audit failure, so as to gain publictrust.The implementation of internal control audit overburden the workload of the Certified Public Accountants, and the increase of audit cost drove the growth of fees.However, this paper has some significance on the regulating of internal control auditing price. In the meantime, by the research of the influence of defects on audit fees, I will analyze the information in the self assessment report and test the effect of guideline implementation. Finally, by the research of the influence of law risks in different regions and the number of listed companies’ illegal and litigation arbitration on the cost of the internal control audit, regulators could perfect legal system of provinces and improve the quality of internal audit based on the conclusion of this paper.Therefore, I will choose those listed companies on the main board that was forced to implement internal control audit between 2012 and 2014 as a sample, so as to research the affect of the severity of defects on the internal control and external supervision on audit fees. The results of this paper are as follows:(1) the defect severity and internal control audit fees have a significant positive correlation, which means the more serious of the defects in internal control,the higher costs that the firms charge;(2) In the region with external strict legal and regulatory environment,the pricing of audit of internal control is higher;(3)For those listed companies suffer from litigation arbitration and penalties for violations, the Certified Public Accountants usually charge higher internal control fees.