Research On The Relationship Between Internal Control Weakness And Audit Fees

In 2012,the Ministry of Finance and the China Securities Regulatory Commission issued the "Circular on Implementing the Internal Control System for Classifying and Classifying Listed Companies on the Main Board in 2012"(referred to as "Notification of Classified and Batch Implementation"),requiring the implementation of mandatory internal control in categories and batches.Until 2014,China's main board listed companies should fully implement internal control audit.Existing research shows that the implementation of mandatory internal control audits has significantly increased the company's audit fees.Some scholars,such as Zhang Guoqing and Xia Lijun[1],believe that internal control audits increase additional auditing costs,which leads to higher audit fees.Some scholars,for example,Schroeder and Shepardson[2]also believe that the disclosure of internal control defects in internal control audits is the path that affects the company's audit fees.There are currently three different perspectives on the relationship between disclosure of internal control deficiencies and audit fees in the academic community:significant positive correlation,significant negative correlation,influential but not significant.This article takes Shanghai and Shenzhen listed companies as samples,and selects data from 2012 to 2015.Through some analysis above,the impact of internal control defects in financial reporting on audit costs is verified,and further research on internal control defects is conducted:Whether there is a difference in the degree of influence on the audit fees of loss-making and profitable companies and whether disclosure and rectification of internal control defects will have "stickiness" in the audit fees of subsequent years.The results of the study indicate that:(1)The correlation between internal control defects and audit costs is positively significant,which means,the disclosure of internal control defects will lead to a significant increase in audit fees;(2)There is no significant correlation between the level of internal control defects and audit fees.(3)Disclosure of internal control deficiencies will lead to audit fee stickiness,that means,for companies that disclosed internal control deficiencies in the internal control self-evaluation report,the auditors still charged High audit fees during the three years after the rectification of internal control deficiencies.But over time,audit fees will gradually decrease.(4)Compared with companies that have incurred losses,the impact of internal control defects in profitable companies on audit fees is even more significant.The research conclusions of this paper not only enrich the existing theoretical research,but also help us to understand the application of auditor's risk-oriented auditing standards in practice.It can provide inspiration for government departments to formulate and revise auditing standards,and proposes the listing company attaches great importance to the establishment,perfection,and effective implementation of the internal control system,promptly discovers and rectifies internal control deficiencies,minimizes audit premiums and reduces audit fees.