Research Into Relationship Between Internal Control Quality And Auditor Choice

As a direct expression form of audit demand and the gambling result among different demanding parties in auditing market, auditor choice reflects the supplying and demanding information of the auditing market from different perspectives. Compared with western countries, the existence of our country’s auditing market is shorter. With the development of market economy, the independent auditing market is gradually developing and standardizing, and high-quality auditing supply has been greatly improved, but some phenomena, like insufficient demanding of high-quality auditing and bad money driving good money out of circulation, still exist. Therefore, that how to promote high-quality audit demand is still a most important research direction for our government, the Chinese Institute of Certified Public Accountants and other research institutes.As an institutional arrangement, internal control is the foundation of the management of an enterprise. In essence, it is a dynamic process that is designed to realize organizational objectives. Also, internal control plays a positive role in ensuring the truth and completeness of the financial report and related information, the legality of the management of the company and the improvement of the operational efficiency and effectiveness. What kind of relationship will exist between internal control, the company’s internal governance mechanism, and the auditor, the external supervision mechanism? Under the background of mandatory disclosure, in which way will internal control quality influence the auditor choice of the listed companies. What is more, will this effect be the same under different property rights of enterprises? Therefore, this article is aiming to explore the factors that influence the auditor choice from a new perspective, namely, internal control quality.Firstly, on the combination of the researches on internal control and auditor choice, and on the basis of the agency theory and the signaling theory, this paper argues that internal control quality of the enterprise will affect its behavior of auditor choice. Secondly, the paper puts the weakness of internal control as substitution variables of the internal control quality and empirically tests the relationship between the internal control quality and auditor choice by using the data and information of2033A-share companies listed in Shanghai and Shenzhen stock markets from2012to2013as samples. In addition, this article analyzes how the property right of the enterprise influences the relationship of internal control quality and auditor choice. The result shows that, companies whose internal control quality is higher are more prone to employ big-sized accounting firms, which is limited in the state-owned enterprises. Finally, the article puts forward some recommendations on several aspects ranging from improving the system of internal control to accelerating the establishment and implementation of relevant policies and regulations. In the end, we discuss the limitations and directions of future researches of this paper.