دانلود رایگان مقاله انگلیسی خطر کنترل داخلی و هزینه های حسابرسی: شواهد از چین - الزویر 2018

Abstract

This study examines the association between internal control risk and audit fees under the voluntary adopting regime of the Basic Standard of Enterprise Internal Control in China. We find that audit fees are positively related to disclosed internal control weaknesses (ICWs). In particular, they are significantly associated with non-financial reporting-related, but not with financial reporting-related, ICWs. Our results also indicate that voluntary assurance in internal control reports can mitigate higher audit fees associated with ICWs. Our study provides timely evidence relating to the debate on whether the scope of internal control should be expanded to non-financial reporting-related areas.

Conclusion

This paper examines the association between internal control risks—measured by disclosed ICWs—and audit fees in China. We find that audit fees are positively associated with ICWs, meaning that the more internal control risks a firm has, the higher the audit fees it will be charged. In addition, higher audit fees are significantly related to internal control risk in non-financial reporting-related areas. The robustness tests show that non-financial reporting-related ICWs—that is, ICWs other than recording or standard compliance-related weaknesses—are positive and significantly associated with audit fees. We also find that voluntary assurance of ICRs can mitigate the higher audit fees associated with the existence of ICWs. Our major contributions to the audit and assurance literature are twofold. First, we find that internal control deficiency in non-financial reporting-related areas or nonaccounting-related areas has a more profound effect on audit fees than that in financial reporting-related areas. This is largely due to non-financial reporting-related ICWs—for example, non-recording or standard compliance-related ICWs—being harder to detect and quantify. This requires auditors to make greater efforts when assessing non-financial reporting-related ICWs and signals the importance of improving ERM through a comprehensive internal control system, particularly focusing on non-financial reportingrelated areas. This result provides timely evidence to support current debate over the potential expansion of the scope of US SOX into non-financial reporting areas, despite concerns relating to the cost surrounding the implementation of SOX in the US. Second, we find that having ICRs voluntarily assured can improve the credibility and reliability of ICR information. This will lower audit risks associated with the existence of ICWs. In other words, voluntary assurance of ICRs can mitigate the higher audit fees driven by higher internal control risks.