The Relationship Between Internal Control Deficiencies And Audit Fees

2101 Words9 Pages
the Relationship Between Internal Control Deficiencies Severities and Audit Fees 1. Introduction With the development of accounting and the occurrences of accounting scandals, such as Waste management scandal, Enron scandal, and Worldcom scandal, internal control of a company has been paid unprecedented attention. For companies, effective internal control activities can help management to prevent and detect errors or frauds from accounting system so that they can have a better operating circumstance. In 2002, the United State Congress passed Sarbanes-Oxley Section (SOX) 404, which requires management to assess the effectiveness of a company 's internal controls over financial reporting (ICOFR) and requires external auditors to review management 's assessment, and then to provide their own conclusion related to the effectiveness of the ICOFR (Choi, Kim, Kwon, & Zang, 2010). The Sarbanes-Oxley Section 404 indicates the rising concern about accounting scandals in businesses due to ineffective internal control systems. Internal controls of companies are to ensure the reliability of financial reporting, which are developed by companies ' managements, thus, if a company has deficiencies in their internal control, it will have a high risk of material misstatement over their financial reporting. Generally, the likelihood in big firms that errors or frauds are appeared in accounting system is higher than the likelihood in small firms (Hoitas, Hoitash, & Bedard, 2008). Audit risk

More about The Relationship Between Internal Control Deficiencies And Audit Fees

Open Document