An Empirical Study On The Relationship Of Internal Control Quality And Audit Pricing

Audit pricing which go by the name of audit fee, is the reward for theprofessional service provided by Certificated Public Accounting. It impacts not onlythe relationship between the company and the auditor, but also the independence ofauditor, so the study on this field has been hot for a long time. The research on auditpricing in occident started earlier than orient. In1980, it’s the first time that Simunicdo the research with the empirical method. In China, the audit fee was not discloseduntil China Securities Regulatory Commission forces the listed company to disclosethe audit fee in their annual report. After that, more and more scholars start studyingon audit fee with empirical method. Otherwise, internal control impacts the auditcost and audit risk. In general, audit pricing is impacted by two factors: audit costand audit risk. After risk oriented audit approach has been created, the concern to therisk of the listed company by CPA has been enhanced remarkable. The good internalcontrol can reduce the audit risk, so that impacts the audit pricing. But the bottleneckof this research is that it’s too difficult to judge the internal control quality. From2012, Chinese listed companies are requested to audit their internal control. As theinternal control audit report, the internal control quality can be evaluated.According to the review of the relating literature, this paper summarizes theconclusion of these literatures. Based on the conclusions, this paper analyses therelativity between the audit fee and the internal control quality by the ways ofempirical research and normative research. This paper chooses all the listedcompanies in Shenzhen Stock Exchange from2008to2011as samples, afterfiltering,1964companies left finally. Based on the audit opinion of the internalcontrol report, the quality of internal control can be separated into4levels. With thefactors of impacting audit cost and audit risk, such as total assets, the complexity ofbusiness, profit, financial leverage, the reputation of accounting firm and the location.This paper analyses the relativity between the audit fee and the internal controlquality. The research indicates that there is an insignificant negative correlationbetween audit fee and internal control quality. The reasons why there is aninsignificant negative correlation are the system of internal control auditing wasestablished just a few months, CPA doesn’t focus on the internal control quality somuch and the audit risk was little considered.