Abstract
Based on the internal control auditing system in China, this paper studies the relationship between internal control audit fees and internal control audit quality. Using the 2011-2016 A-share listed company data test, it is found that under the control of other possible conditions, the higher the internal control audit fee and its proportion, the lower the probability of being issued anon-standard internal control audit opinion, which means that the relatively high internal control audit fee may be paid by companies to purchase more favorable internal control audit opinions. Further, the above result is found to be more significant in non-state-owned, relatively smaller companies, and clients whose total audit fees are higher. In general, from the research conclusions of this paper, the high internal control audit fees can be a form of damage to the independence and quality of internal control audit. The results have certain guiding significance for policy makers to further improve the internal control auditing system and regulate the disclosure of internal control audit fees, and also for the decision-making of auditors and listed companies.
Highlights
According to the CSRC Accounting [2001] No 67 “Question and Answer of the Information Disclosure of Companies that Offer Securities to the Public No 6—Payment of Accounting Firms and Their Disclosures”, China’s listed companies have been regulated to disclose their payments to public accountants in their annual reports since 2001
Based on the internal control auditing system in China, this paper studies the relationship between internal control audit fees and internal control audit quality
Using the 2011-2016 A-share listed company data test, it is found that under the control of other possible conditions, the higher the internal control audit fee and its proportion, the lower the probability of being issued anon-standard internal control audit opinion, which means that the relatively high internal control audit fee may be paid by companies to purchase more favorable internal control audit opinions
Summary
According to the CSRC Accounting [2001] No 67 “Question and Answer of the Information Disclosure of Companies that Offer Securities to the Public No 6—Payment of Accounting Firms and Their Disclosures”, China’s listed companies have been regulated to disclose their payments to public accountants in their annual reports since 2001. In the “Contents and Formats for Information Disclosure of Companies that Offer Securities to the Public No 2—Contents and Formats of Annual Reports”, which has been revised since 2012, the provisions are added, stating that companies shall disclose the appointment of the internal control auditors and the remuneration paid to them during the reporting period. The contributions of this paper to the existing research are as follows It extends the research situation of audit fee information, demonstrating the impact of internal control audit fees on the internal control auditquality, and providing further empirical evidence for the economic consequences of audit fee disclosure. It expands the research on the relationship between abnormal audit fees and auditor independence. Most of the relevant literatures in the past have focused on the economic consequences of internal control audits [11] [12] [13] [14], while few literatures regard the internal control audit fees except for Fang et al and Tang et al This paper finds that, from the public disclosure, the higher internal control audit fees may imply the purchase of internal control audit opinions, which means relatively low internal control audit quality
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