Study On Internal Audit Characteristics And External Audit Fees

The Chinese Institute of Certified Public Accountants has promoted CSA:No.1411, which encourages external auditors firstly assesses the quality of internal audit works based on four criterions:objectivity, competence, due care and communication and then rely on internal audit works. External literature made progress and contributions in researching on the outcomes of external auditors’ reliance decisions. Moreover, external literature proved that reliance decisions could improve audit efficiency, economize audit resources and so to reduce external audit fees. However, few internal researches have studied on this issue.In recent years, Chinese Listed Companies were obliged or advised to publish certain information about internal audit function quality or important characteristics, such as the information about chief audit executive’s background or the size of internal audit function. Using the data of Chinese Listed Companies from2010to2012, this thesis aims to reveal the relationship between internal audit quality characteristics and external audit fees, so to prove the audit fee reductions from external auditors’reliance decisions.The main content of this paper include the following:The first chapter,"Introduction", reveals the research backgrounds of the relations between external auditors’reliance decisions and external audit fees, and the main contributions and innovations of this thesis.The second chapter,"Literature Review", firstly offers a guideline of western research history and framework; secondly focuses on related researches how IAF-specific factors influence external auditors’reliance decisions; and thirdly reviews the recent literature on the observable effects of external auditors’reliance decisions to audit fees.The third chapter,"Theoretical Basis", offers theoretical basis for this research.The fourth chapter,"Research Design", firstly uses factors about the total assets of listed companies, audit difficulties, audit risk, shareholding structure, and audit firms as the explanatory variables to explain external audit pricing; and secondly models those variables of internal audit quality’s objectivity, competence, and due care to explain the residues of formal model---unexpected audit fees, so to reveal the outcome of reliance decision on audit fees.The fifth chapter,"Empirical Analysis ", firstly presents of empirical results of audit fees pricing model; and then mainly focuses on the empirical analysis results of unexpected audit fees pricing model. Results showcase that whether the chief audit executive owns entity’s equity or not, and whether the chief audit executive has acquires the certification of CIA or other auditor’s license has significant influence to the unexpected audit fees.The last chapter,"Suggestions and Directions for Further Research", suggests corporations shall further develop internal audit department and promote internal audit environment, and eternal auditors shall reach a higher degree of consensus about internal and external cooperation, while CICPA and IAA shall promote related operated guidelines.