Factors Influencing Audit Fees Of Internal Control Over Financial Reporting

Enron, WorldCom and a series of major financial fraud scandals caused a great shock to the U.S. capital markets. The public generally questioned the quality of financial information of listed companies. In2002,the U.S. Congress passed the Sarbanes-Oxley Act (SOX). In order to improve the reliability of financial information as well as restore investors’ confidence in the capital markets, Section404requires management to disclose internal control self-assessment report in the annual report, at the same time requires the auditor to express an audit opinion on the effectiveness of internal control over financial reporting (ICFR). Since then. The information of internal control over financial reporting became a mandatory disclosure, ICFR audit become corporate legal obligation.SOX had strengthened the government’s supervision of the capital market, and effectively improved the quality of financial information, but it also garnered criticism for its high implementation costs. Although fifth auditing standards (ASS) issued by PCAOB proposed risk-oriented integration audit, to some extent, reduce the cost of the audit, but the audit fees of listed companies is still at a very high level.In order to comply with the trend of international regulatory changes, the ministry of finance jointly by five departments released the "Enterprise Internal Control Audit Guidelines" in April,2010. Companies listing both at home and abroad began to implement the internal control audit since2011.The high cost of the Execution has a serious impediment to the implementation of the SOX. Audit fees of internal control over financial reporting is the most important implementation costs of the "Enterprise Internal Control Audit Guidelines". The change of audit fees of the Chinese listing companies under the new system deserve special attention. Since most of the listed companies perform integrated audit, few companies separately disclose the audit fees of internal control over financial reporting in the annual report, which has seriously hindered the direct research on the audit fees of internal control over financial reporting.This paper researches the factors influencing audit fees of internal control over financial reporting based on A-share listed companies of China under the new system,in the purpose of providing theoretical basis and data support for the market pricing of internal control audit and the improvement of policy and regulatory measures.In this paper, the author uses the following method to estimate the cost of the audit of internal control over financial reporting:first of all,determine the year of sample companies for the first time to internal control audit in accordance with Section404of the Sarbanes-Oxley, Then according to the difference between audit fees and the previous year’s audit fees after the adjustment of the scale coefficient to estimate audit fees of internal control over financial reporting.The paper is structured as follows:Part Ⅰ:Introduction. This part points out the background as well as theoretical and practical significance of this article, explains the research ideas and research metho ds, lists the main innovation of this study as well as the article structurePart Ⅱ:literature review. On the basis of studying the relevant literature, this article sums up the status quo of the domestic and foreign scholars about the audit fees, and points out the inadequacies of existing research to determine the starting point, and hope to do a supplement to existing studies.Part Ⅲ:summary of the theory. This part includes the connotation about audit of internal control over financial reporting, the implementation of the internal control audit, and theories on audit fees. Analysis audit fees with theories about audit requirements, the theory of supply and demand as well as the negotiation game theory.Part Ⅳ:the design and test of empirical research. firstly, use the modified Simunic model to test the influence of internal control audit on audit fees. And then, estimate the audit fees of internal, and further examine the factors which influence the audit fees of internal control over financial reporting.Part Ⅴ:conclusions and recommendations. In this chapter, the author summarizes the results of empirical research and puts forward suggestions from regulatory agencies, accounting firms and enterprises three levels, finally points out the inadequacies of this article and follow-up research directionThe findings in this article:Because of the internal control audit, listing Corporations’ audit fees increased significantly. Audit fees with an average annual growth about21.2%. Firm size and auditor reputation have a significant positive correlation with audit fees of internal control over financial reporting. The quality of internal control and voluntary disclosure of internal control audit report have a significant negative correlation with audit fees of internal control over financial reporting.Due to the author’s limited knowledge, and the data collection difficulties, this paper has the following deficiencies:Although in this paper eliminates the effects of changes in the size of the company on audit fees, but there is a big error for the estimation of financial reporting internal control audit fees, In addition, due to the short time span of the study sample, the results proved inadequate. With the development of internal control audit over financial reporting, Other scholars can Conduct more detailed research on the trend of Audit Fees Of Internal Control Over Financial Reporting.