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The Relativity Research of Internal Control Risk and Audit Charge

Author: ZhongZuo
Tutor: LiuMingHui
School: Dongbei University of Finance
Course: Accounting
Keywords: Internal control risk financial reporting deficiencies in internal control audit fees cost-effective risk premium
CLC: F239.4
Type: Master's thesis
Year: 2011
Downloads: 213
Quote: 1
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Abstract


It is well known that in our capital market, the service charge of accounting firm implements the government guided price and the market adjusted price. For a long time it lacks the relative unification and reasonable charging criterion. The audit charge question has been concerned to our government and the academic circle. According to existing research of domestic and foreign, audit charge including three aspects:audit cost, audit risk and price premium. As an important component of audit risk, whether internal control risk affects the audit price? Overseas had research to indicate that the audit price increases along with the internal control risk increases. But under our current background, there still did not have the unified conclusion about the relativity of internal control risk and audit charge. Because it is a short time since the implication of the basic standard for enterprise internal control, in addition to the difficulty of gaining information and does not have the detailed standard to judge the internal control information. This article is trying to detect the relativity.This article first used standardized research, after reviewing the domestic and foreign literature and acquiring the related background, we built the theoretical framework of the audit pricing, and then proposed this article supposition. Financial reports disclose audit fees to provide one of data foundations. For the data of internal control risk, our country does not provide open and accurate quantitative information. Therefore this article unifies the current audit market characteristic, through the theoretical analysis, and then got an alternative variable. They are the companies which be punished, has the financial reporting iteration and get the non-standard non-reservations audit report, all those provides the basic tool for the later empirical study. Then this paper took companies listed on Shanghai and Shenzhen A-share to carry out the test data analysis. First carried on the regression analysis, observed whether the re-build model’s adjusted R-squared is increased, and observed the coefficient and significance of explanatory variables and by explanatory variables. To further observe the influence of internal control risk to the audit expense, the paper observed the audit fees of the existence of deficiencies in internal control that year and two years before and after changes in audit fees. Finally, to further eliminate other interfering factors, examine whether the corporate existence of internal control deficiencies are significantly higher than that of no internal control deficiencies, this article has carried on the same year, the same scale, with the office type and with to be listed locus pair sample T-test.Through theoretical analysis and empirical testing, this paper draw the following conclusions:(1) The internal control risk influence audit price, the audit charge increases along with the internal control risk’s enhancement; (2) Compared with the year before finding deficiencies in internal control, the year finding deficiency and the year after has audit fees greatly increased, and the year finding deficiencies in internal control has audit fees maximum; (3) The same year, the same size, same type of audit firms and listed companies with the location of the paired samples T-test, test results show that the audit fee of the observation group were significantly higher,which further revealed that internal control risk has a significant impact on audit pricing.The characteristics of this paper lie in unifying the outside current hot topic of internal control deficiencies and audit fees. What is more from a new perspective to explore factors affecting audit fee. This article’s innovation including the following 3 aspects:(1) clarify the relationship of audit risk, internal control risk and audit fees;(2) through the theoretical analysis, strictly set of the standards of significant financial report internal control deficiency, and provided the new mentality for the present internal control quality’s appraisal (3) empirical part of the article is comprehensive and rigorous, used data from 2004 to 2010 data, all-directional, eliminate interference factors.Because the research time is short adds myself level to be limited, still had some limitations:mainly in the sample selection and the judgment on the internal control deficiencies, both of them mostly based on judges subjectively, possibly affects the real diagnosis result to a certain extent.

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