Information Disclosure Of Internal Control And Audit Related To Pricing Study

Since2001, the corporate scandals in WorldCom and Enron, have broken out successively in America, which have clearly exposed the fact that senior executives in some listed companies manipulate the shareholders’equity above the internal control, resulting in the lack of objectivity and reliability in internal control information disclosed by listed companies. In2002, the United States Congress promulgated the Sarbanes-Oxley Act, implementing strict regulation on the internal control and information disclosure of listed companies. With the development of China’s capital market, various departments supervised the disclosure of internal control information in listed companies more and more standardized. In June2008, the Ministry of Finance jointly with CSRC (China Securities Regulatory Commission), National Auditing Administration, CBRC(China Banking Regulatory Commission), CIRC (China Insurance Regulatory Commission) promulgated the Basic Norms of Internal Control, regulating that the listed companies should self-evaluate the effectiveness of internal control, disclose the corresponding self-evaluation reports, and hire CPA(Certified Public Accountant) with qualification for securities and futures to audit the effectiveness of internal control. The sufficient and reliable internal control information can not only help the external auditors to obtain the effective information support, but also be conducive to improving the governance level at listed company, and reducing the company’s audit fees. The promulgated corresponding laws and regulations can provide the theoretical basis and data support for the analysis on the effect of listed company’s internal control information disclosure on audit pricing.The purpose of this paper is to explore the relationship between internal control information disclosure in listed company and audit pricing under the special institution background in China. Through defining the related concepts of internal control information dislosure and audit pricing, the author discusses the role of internal control information disclosure and the factors affecting the audit pricing, and then explores the correlation between internal control information disclosure and audit pricing, and puts forward the following two hypotheses:H1:the disclosure of internal control self-evaluation report is negatively related to audit pricing; H2:the disclosure of internal control verification report is positively related to audit pricing. One can draw a conclusion that:there is significant negative correlation between the disclosure of internal control self-evaluation report and audit pricing; while there is significant positive correlation between the disclosure of internal control verification report and audit pricing. In the security market of China, the auditee’s scale can exert the greatest influence on audit pricing, and the Big Four audits and the audit opinions can also have a significant impact on audit pricing.Based on the two Guidelines promulgated by Shanghai and Shenzhen Stock Exchange in2006, and the previous studies, the paper collects the internal control information of listed companies on Shanghai Stock Exchange according to whether the listed companies have disclosed the self-evaluation and verification reports on internal control in the annual reports, and adopts the method that combines normative theory and empirical study to explore the correlation between internal control information disclosure in Chinese listed companies and audit pricing under the special institution background in China. The paper is not only an important complement for the audit pricing model, but also of great significance for standardizing the audit fees, improving the audit quality, and reducing the audit risk. What’s more, this paper can also provide empirical evidence and decision information for the relevant government departments to supervise unfair competition in CPA industry and regulate the industry development.