The Effect Of Internal Control Material Weaknesses And Their Remediation On Audit Fees

Internal control has been the focus of domestic and foreign academic research.In particular,the Sarbanes-Oxley act was enacted in 2002,making it a research hotspot.Among them,section 302,section 404 required listed companies in America must disclose internal control self-assessment report according to the rules,at the same time employ with appropriate qualification of certified public accountants audit the internal control,issue internal control audit report.The promulgation of mandatory policies and regulations on the internal control of the companies has caused heated debate in academic circles.They concentrated on that accounting firms may charge high audit fee because of this mandatory requirement.So,scholars have begun to refocus on the determinants of audit fees and the impact of internal control on audit fees.Although China's internal control construction started relatively late,it has also experienced such a process.With the continuous improvement of China's regulatory system since the 20th century,audit fees are part of the disclosure of the annual report of listed companies.This provides the possibility for scholars to research.Also,the internal control system of listed companies is constantly improved.This also provides support for the research of this paper.This article uses internal control material weaknesses,the most representative of the internal control situation,to discusses its impact on audit fees.Through the Principal-Agent Theory,Signal Transmission Theory and Audit Insurance Theory,this paper analyzes the mechanism that internal control material weaknesses may affect the audit fees.And it poses three hypotheses.To verify three assumptions,this paper takes the listed companies of Shanghai and Shenzhen A-shares as the research samples from 2012 to 2016.A total of 6712 observations are obtained by eliminating the missing data samples.Through a series of empirical research methods,it comes to the conclusion.The innovation of this paper is as follows:First,this paper selects the best indicators that reflect the internal control situation of the company:the internal control material weaknesses,and explores its impact on audit fees.Then,this paper divides the internal control material weaknesses according to the continuity of internal control material weaknesses,to study the impact of these three different types of internal control material weaknesses on audit fees.Further,different control groups are selected to explore the influence of the remediation of the material weaknesses on the audit fees.