An Empirical Study Of The Relationship Between Internal Control Weaknesses And Auditing Fee

Effective internal control can provide firms with the guarantee of sustainable development, while serious internal control weaknesses may lead to bankruptcy. Internal control as an important content of the auditor preliminary evaluation, whether the material weakness exists or not is closely related to the auditing risk and auditing fee. There is a disagreement on the research between internal control weakness and auditing fees at home and abroad. Whether auditing fee is affected by the severity of internal control weakness and whether internal control weakness revise reduces the auditing fee remain to be further discussed.Firstly, this paper reviews literature about the study onthe relationship between internal control weakness and auditing fee.Next, based on the cost theory and risk theory, we analysis internal control weakness and auditing fee in details.Then, this paper selectssamples from Shanghai and Shenzhen during 2009 to 2014, and use statistical analysis software Stata12.0 to empirically test.Results show that internal control weakness has significant positive correlation with auditing fee, that is to say auditorswill charge company which exists internal control weakness for higher auditing fee. According to the severity, internal control weaknessis divided into material weakness and non-material weakness, studies have shown that the more serious internal control weakness is, the higher auditing fee will be, this correlationis significant under 1% level.According to the degree of the revise, internal control weakness is divided into all-revised, part-revised and non-revised, the study finds that the internal control weakness revise and auditing fee are positively correlated, significant at the 0.01 level, indicating that the revise of internal control weakness will not reduce the auditing fee.There arethree novelties in this paper, one is that on the range of sample, firms which didn’t disclose internal control information shall be regarded as weakness, rather than out of it;Second, on the recognition of internal control weakness revise, having-revised and not-having revised are reclassified into all-revised, part-revised and non-revised; Third, on the relationship between internal control weakness revise and auditing fee, this paper concludes a different result from before, providing a new explanation on them.Based on the above research conclusion, in the end, we put forward relevant policy suggestions.