The Empirical Research Of The Relationship Between Internal Control And Audit Pricing

Accounting firms in our country generally use the government guided audit pricing.But due to the subjective and objective conditions,the government guided pricing emerged a series of problems,such as pricing factors are unreasonable and uniform.Its rationality is questioned and challenged.In theory,there are two basic factors that influence the pricing of CPA’s audit service:the first is the audit costs and the second is the audit risk. Effective internal control not only saves the cost that CPA provides the audit service, but also reduces the risk of material misstatement of financial statements. So in this paper, the author makes the evaluation of the effectiveness of internal control as a breakthrough to start the research on the pricing of CPA’s audit services.In the basic NORMS OF INTERNAL CONTROL promulgated by China’s Ministry of Finance, the objective of internal control is defined as providing reasonable assurance for the legal compliance of business management, assets’security, financial reports and related information that is true and complete and improves operational efficiency and effectiveness, and promotes the development strategy.The overall objective of this defination can be divided into five sub-aims:that is strategic objectives, operational objectives, reporting objectives, asset security objectives and compliance objectives.Based on the public data that can be obtained, the author has converted these sub-aims into a set of quantifiable evaluation system and constructed a evaluation system of internal control that suits for China’s listed companies through the calculation of weights and the determination of evaluation criteria and scoring method. In order to ensure the validity of the evaluation system, this paper empirally tested the evaluation system from the perspectives of effectiveness of its identification and prediction by selecting922companies that listed in Shenzhen and Shanghai Stock Exchange in2011as samples and employing the level of information disclosure of internal control standards as the alternative variables of the true level of a business’internal control, the results show that the evaluation system has high reliability and practical value.In order to further reveal the true rules of CPA’s audit pricing in China’s market, by using the evaluation results of internal control as the the alternative variable of the level of control risk and including it in the audit pricing model, the author studied empirically on816companies that listed in the Shanghai and Shenzhen Stock Exchange in2012. The results show that there isn’t statistically significant correlation between the audit fees the level of risk control despite that CPA issue more audit reports of non-standard unqualified opinion to companies with higher risk.This paper enriches the current research on CPA’s audit pricing and further reveals true rules of pricing of CPA’s audit services in China’s market. It also provides useful empirical evidence and decision-related information for the relevant government departments to restrain the unfair competition and regulate the development of the CPA industry.