How to evaluate service return on investment--留学生Report代写范文

留学生Report代写范文:“How to evaluate service return on investment”，这篇论文主要描述的是投资服务的内容主要包含审计、咨询、文档、清洁等方面，本文主要以审计服务为侧重点，并举例了该公司创造的ROI（投资回报率）指标，认为企业在寻找合作伙伴前需要考虑各自的法律法规、财务指标、可靠性、客户满意度等等，这样能够帮助公司及时发现和制止风险的发生。

Investments on service (IOS) have taken a significant proportion of the total investment in the company. The services include the auditing services, consultation, documentation, and cleaning services. In the article will focus on following two respective regarding to the Auditing service to prove the ROI indicators which I built; the company applied these indicators to select the service and reduce the expenses. In this article, we have found as follow: to decide which company to cooperate in the next year, the company should consider the legal respective under the law, regulations, and rules first and then financial indicators are taken into the consideration; they are revenue, assets, profit and NPV. Among these four indicators; the company should consider the non-financial indicators: The non-financial indicators are related to four attributes categories: they are timeliness, or service duration; integrity, or service completeness; reliability, or service consistency; and customer satisfaction; and Three “E” evaluation models, they are economy, efficiency and effectiveness.  In addition, the company should look insight the auditors’ internal control. At last, the company should find the potential risks such as confidential information leak risk, reputation risks and other related risks when make a decision which party to engaged on the service. After these steps, company could select the engaged service partner.

Introduction

The conceptions of service management can be adopted in the area of auditing service. The main goal of service management for balance the activity and interests of clients and service personnel is to monitor and control the reversible links process. Apparently, the auditing engagement usually contains two parts, they are clients and auditors.Staliūnien?&Stungurien? (2008) stated that the main mission of auditors was extending benefit to clients. As an auditor, the responsibility is a byproduct of performing audits and rending audit report (Fontaine and Pilote 2011, 2012).In addition, from the points where clients stand, they are willing to get maximum Return On the Service (ROS), including the value add services such as management comments and other types auditor advice as well as the feedback on the accounting, internal controls and general business issues(Herda&Lavelle, 2013). This article will discuss the how to evaluate the auditing service performs well by the indicators. Three issues also discussed, how the clients select the engaged auditing companies; how to evaluate the performance of the auditing engagement; how to assess the combination of the service and fees, which are applied for next years’auditingengagement election.

The insight of the auditing service

In general, Industry Audit usually first takes audit investigation, which is against to the important enterprises or projects that with industry tendency and universality of the problem; and then focuses on the external audit and internal audit of power to carry out with well planned arrangement from top-down leadership, in order to synchronize audit. This audit takes short time period and takes effect quickly. 

Systematic.

Industry Audit locates in different spaces and levels of specific units and their aggregates; each specific unit of audit is only partial. Though each local audit is necessary to do a good job, and it does not mean that the entire industry audit you are able to do could turn out a good job, which is not equal to the system of local superior overall excellent, one plus one does not necessarily equal to the principle of two. The scope and composition of the intrinsic link unit between industries makes systematic audit requirements of the industry quite prominent, especially for those with higher degree of centralized economic system and technology industries. Industry Audit grasps that all the audit requirements of each unit should pay more attention to establish and maintain association between each unit, grasps the overall coordination and industry issues. Its meaning is to have systematic audit organizations, audit programs, in which the content must be systematic, to identify problems and to deal with the problem also has to pay attention to systemic problems.

Hierarchies.

Unit in the industry is often in different space management systems or different levels, due to its different functions, responsibilities and rights division, among which different levels of organizational forms have in common, but more of his personality, that there are different issues at different levels. Therefore, the industry is not only reflected different levels of audit on the organization and implementation, but also in the level of audit focus.

Concentrations

Industry Audit should be taken due to the characteristics of the industry in order to play different degrees of centralized audit effectiveness and power. This focus is reflected in that how vast the surface of the industry audit, which is able to cover. If there is no enough surfaces, then it will not adequately reflect the whole picture of the industry. If the mount of audit in an industry is too small, the small amount of audit will not be able to solve any problem, and sometimes may arouse the suspicions of the issues, which lead negative influence or consequences to the industry. The second is to focus on the linkage. This linkage is not only in space but also in time, which can be used to prevent error of omission, and to help to play positive influence on concentration of forces. Linkage requires coordination, collaboration of the organization; it also means that the industry needs to pay greater organizational audit costs. The third is to integrate the whole plan, schedule and professional technique of auditors. 

From the above-mentioned three features in the industry audit, the audit industry is with the features that cover a big amount of checkpoints, multiple levels, vast scale, high level of difficulty, and macroscopic point of view etc. All of them require audit agencies or organization and auditors to handle very well.

A good audit job requires the cooperation of audit agencies and auditors on the all levels of audit in order to make audit play the best effect. These levels including but not limited in the following: industry selection – audit direction selection and confirmation – audit organizing – audit implementing and audit processing etc.

First is option and arrangements. To select projects within many industries and make arrangements for the audit target range is the primary link. In the present and future periods, the object restructuring and adjustment of the reasons for the industry has been changing greatly. At the same time, audit resources are available under limited circumstances, which make the selection of the option very important. To have this work done well is the responsibility of the central, provincial audit institutions. The options and arrangements which should pay attention to is as following: do not over-schedule in an annual audit of the industry, especially those for heavy workload, involving a wide range of business sectors complex audit, which should be adequate. Therefore, we should firstly select based on the amount of funds involving and as well as problems, which affecting large industries. As some have monopolistic nature of the industry, the financial sector and other sensitive sectors are related to the national economy and industry, public goods industries. It should also be noted among some of the changes in such reorganization, merger, restructuring of industry audits options. These industries usually have big amount of cash flow. Also we should note that those who choose a high concentration of non-industry-wide audit of the project couldn’t solve the problem. On the Options problem, senior management in the central of an organization usually looks at the provincial levels; wider horizons audit institutions, and focused awareness to highlight. Another option is to pay attention to the basic conditions for the selected study audit industry, incurs election audit industry, which should remain at a relatively steady state operation and management.

Second, mode selection and power configuration are taken. Industry Audit is in the way, which can have a variety of options, it can also take a comprehensive hierarchical peer review, which can be taken to the next level on a limited trial mode, and can be taken the way of crossover trial, and to take to joint hearing or to focus wheel is also a choice of trial ways. Using the above methods may be incorporated in the embodiment. Audit mode selection is very important; because different industries have different ways using the same audit results, the same industry also chooses different audit methods, which may have different audit results. Mode selection is essentially a rational allocation of audit resources. When configured properly, it will get at a reasonable audit into very good audit results; however, in case it was improperly configured, not only that auditing resources will be a waste, but also makes it difficult to ensure the audit results.

In the specific choice of audit methods and manpower allocation, we must first analyze the situation of the industry that if it is suitable to be the trial, when the focus of its business and institutions are in very prominent cases, exhaustive audit is not necessarily the best way. In 2001 the Audit Commission audit of Bank of China organized industry, the focus of the line is to select only seven audit agencies to obtain better performance examples to illustrate this point. When an industry is in a multi-level institutions and dispersed, the amount of hours, the trial was better to take focus wheel; secondly, to analyze the distribution of power and strength of the audit, this consideration is lower on trial, or cross-examination or peer review, as well as face audit coverage. At the same time, considering the tightness of the industry is intrinsically linked tithe to the trial. If the focus is tight, the special needs of audit are upper, and at the same time, the linkage is lower, then to take a certain level of focus and scope of the trial is better. It is easy to communication, interaction and down to prevent because of the time difference, decentralized trial legacy. Costs is related to the audit selection methods, and collection allocation issues are need to consider, but the audit mode selection guiding ideology should first be beneficial to audit quality, conducive to the rational allocation of audit resources and secondly, in order to consider appropriate units such as the assessor interest and other factors.

Third, from macro and micro studies are auditing profession. Different industries have different characteristics, operations and problems. Industry which is to have the audit, its comprehensive, in-depth research is very important, so be targeted, in order to seize the key. Regardless of industry should be wary of differences in habits of thought or experience style, manner, on account of audit trial account type. Does the audit should be noted that the pre-trial investigation and research work, the depth of surface surveys and research should be larger than the single audit? Secondly, pay attention to the test in advance to arrange the trial, with particular attention to grasp the industry, and external conditions from the macro side.

Fourth, organization and coordination, collaboration and grab the key.

Industry Audit’s success is the key level of coordination and collaboration at the level of organization of the relevant units, the key of the unit and the audit team leader in the industry body. Therefore, the unit must first select those business ability, strong organization and coordination of audit comrades as industry leader. Not only they have to review the relevant staff is good, furthermore, it must have global awareness, industry-wide audit plan, delicate and accurate procedure, well aware of the problem and putting considerable effort for the organization, coordination and collaboration on the time and effective guidance. Pay attention to the time schedule coordination, coordination of field operations and processing operations, investigation and joint investigation of unity and so on. During the meeting can achieve their goals through appropriate, inspection, presentation, communication and other means.

Unlike that single audit focuses on major industry audit: first in the audit power layout, to choose key areas of the industry, focusing on institutions; secondly, we should pay attention focused on the business, focusing on links.

Integration and the establishment of industry audit mechanism 5 assessor units.

Industry audits often requires auditing agencies at all levels to participate in these institutions under the different relationships, different interests, and combined with other factors. Some of the acts assessor units often go astray, instead of entirely by industry overall audit plan and audit requirements, easily lead industry Audit results discounted. On this aspect, special emphasis assessor units have a global and a game of chess ideas should be particularly serious industry audit work discipline, the units should strengthen inspection, supervision, evaluation and incentive should be to establish a working mechanism for the assessor units. Assessor's good to be encouraged in various ways, the Senate trial must be bad punishment, which should be severe or to cancel its participation in the coming year trial eligibility.

LiteratureReview

The clients, the investor, ordered the auditing services, and who expected the maximum the return on the auditing services. Auditing service, with the purpose to examine statement of accounts and of other documents, connected with accounts by persons who have had no part in their preparation (Auditing, 2013).In the normal practice, the auditing report is the final products for the clients no matter the forms of auditing service. For example, the auditor will provide the professional views on the financial statement whether they comply with Accounting Standards or not in the auditing report for the Initial Public Offerings (IPO) and the annual report auditing. In addition, according to website of Price water house Coopers (PWC)(www. Pwccn.com) (2014), the main services they provide as follow: Audit and assurance, business recovery, Forensic Services, internal audit and IPO and etc. To evaluate the performance of the audit, we should concentrate the Figure 1, which is a basic picture of the process of the auditing process. The firms are included the big four (PWC, Deloitte DeloitteTouche Tohmatsu, Ernst & Young and KPMG)(Kao & Zhang, 2013) and non-big four accounting firms. The costs of auditing services are totally different between big four accounting firms and other non-big four accounting firms. Furthermore, the quality of auditing providing by the auditing firms is not on the same level. Simunet.,al (1980) stated that the charges of audit of the big 4 clients is much higher than those of the non-big 4 clients. There is a dilemma here: quality and costs, whether to select the auditing services based on the quality or the cost.

Figure 1: The process of the auditing services

Lawrence&Ping (2011)’sstudy, which finds out that if the different proxies for audit quality between big four and non-big four audit firms could reflect their respective clients' characteristics or not. In the process of analysis of this finding, they use three audit-quality proxies, they are discretionary accruals, the ex-ante cost-of-equity capital, and analyst forecast accuracy—and employ propensity-score and attribute-based matching models (Lawrence&Ping, 2011).Lawrence&Ping’s study proves that on the aspects of the three audit-quality proxies,There is no obvious symbol that the influence of the big 4 auditors and the non big 4 auditors are not consistent. At the same time, the differences in these three proxies which can reflect the client scale, meaning, the client features and preference (Lawrence & Ping, 2011). That means that the auditing quality is related to the clients’size.In their study, the result is that big 4 firms are easily attracting the big size firms’ service. However, that there is a fee premium in itself, does not means that Big 4 auditors provide better service, especially when the Big 4 auditors have more right than the non-big 4 auditors of price making. In the pre- audit, the big 4 have the more power to discuss on the auditing price whether to accept the auditing service to evaluate the performance of the auditing service, closely research the theories of Return on investments by models.

4.1Return on the investment for auditing service

In the economic world, everyone is greedy. For the services investments, they are willing to get the maximum return on the investment, not only in the form of the money, but also for a term of reputation or shareholders’ confidence or others. Fontaine&Pilote(2012) stated the types of relationship that clients refer to have with their financial auditors. They have surveyed 306 Canadian financial executives (clients). Clients are willing to be a relationship approach such as ongoing process based on cooperation, communication and trust) than a transactional approach (Fontaine&Pilote, 2012). Furthermore, the clients seek information and advice more than the core audit service. In addition, the client’s desire to remain at arm’s length could be of interest to audit practitionersand audit standard setters (Fontaine&Pilote, 2012). That means the expectation to return on service investments, is not only the final product auditing report, but also the internal control and corporate governance suggestions from the auditors through the process of the auditing and good relationship (Fontaine&Pilote, 2012).On the contract, Keune&Johnstone(2012)stated that they find the effect of managerial incentives associated with the pressure created by analyst following is weakened by the auditors’ incentives to protect their reputations. As audit fees increase, auditors are less likely to allow managers to waive material misstatements. Therefore, the maximum return of auditing services is auditing report, suggestions and solutions when client face the problems.4.2Traditional measurement of the performance of auditing service

The latest researches are all relied on the reworking on the traditional measurement such as board indices of customer satisfaction, audit cycle time, and hours by project or project phase (Applegate, 1997). There is no doubt that many of these metrics are useful in the prior years. For instance, the cycle time is potential to be an appropriate factor for measuring efficiency if the number of the auditors is fairly homogeneous. However, since the scandal of the Enron in 2001(Ewing, 2013) and WorldCom in 2002(Fain, 2005), the key issue of the scandal is related to the corporate governance, transparency and accountability (GAO Reports, 2002). The professors and researchers are both taking the consideration on the latest method to measure the performance of the auditing performance. The reason is that the nature and scope of the audits differ markedly from project-to-project; variance analysis will usually prove unreliable, yielding trend data of spurious value. Also classical techniques for the valuation (NPV) , internal Rate of Return, Modified Internal Rate of Return, Payback period Rule of Profitability Index, as long as NPV is considered as the most suitable financial indicator to assess the auditing service(Ross, Westfield, and Jaffe, 1999).

How Net Present Value should be calculated:

NPV=-Io+∑_(t=1)^N?〖CFDt/〖(1+k)〗^t +(VR n)/〖(1+k)〗^n 〗

With: Io= the amount invested;

CFDt= the cash flow produced in the year t;

VRn= residual value (in the last year, n);

n= the number of years in which the project will produce cash flows; 

k= the discount rate

For a presentation of the main issues see Dragota, Ciobanu, Obreja and Dragota (2003). This equation can be written as:

NPV=NPV (Io,n,k,CFDt,t=1….n,VRn)

Generally, the risk, which should be taken in to consideration through the discount stands for the rate of return according to the investor’s requirement, which means the opportunity cost. The discount rate equals to the risk free rate (Rf) as long as the cash flow is obvious and constant.In these conditions, a higher-level risk will induce a higher risk premium (π), respectively:

K=R_f+π

However, the level for risk premium is very subject as long as it is the result of the investment on services. In this condition, NPV degrees could change in under vast limitations. Furthermore, against each risk aspect, the risk premium is summarized by some partial risk premium. The factor, which is able to identify the decreases in cash flows, is a risk factor. Following is the examples, which is usually taken as risk factors: the appearance of new competitors, new chances and/or solutions of demand in the structure, accidents which influences company’s image, a decrease in clients’revenue, and an increase in prices for the service supplier, the loss of key human resources and etc. No company can exclude the influences of the risk factors of itself.For example, a CEO is sentenced to jail with the financial corruption in a term of the employment. Therefore, NPV is a significant factor to consider the return on the service for the auditing service.

The latest measurement of the performance of auditing service

Kotane&Kuzmina-Merlino (2012) demonstrated that business performance evaluation, including financial and non-financial indicators of the company. The main source of information about financial indicators of business activity is the company's financial statements; evaluate them based on the company’s business operating activities and financial situation condition. Assess the operating performance of small companies and financial condition in promoting financial management decisions because it helps assess the risks and potential benefits of planning a significant role in the performance of the company's point of view. Explore and evaluate the significance of financial indicators, the success of enterprise management solutions that can be achieved by a single financial index evaluation system development to achieve results in a complex business analysis background. Although in the scientific literature to increase the number of publications on the subject, the nature and financial performance indicators researchers have not yet reached a common view of the composition, and the fact that their measurement and evaluation methods. Content of the article reveals the essence of various theoretical approaches, the classification of understanding financial indicators and types of measurements. According to official statistics, every day, every four companies are facing bankruptcy proceedings. Latvian businessman survey, financial indicators of small business owners need to have a certain amount of data in the system to effectively manage the financial situation of the company. Small business is the most obvious feature in accepting their limited financial resources and difficulties. Because it has become the subject we are very concerned about the case of borrowed capital, such as access to bank loans, because they are potentially related to the possible risks to the company, for example, the company could not pay off the debts. In order to assess the borrower's credit financial institutions often use data about by LR Central Bureau of Statistics and the LTD "Lursoft" branch of the average index is calculated. About financial indicators are at least three aspects to be improved. They are considered universal model financial indicators institutions, they do not consider the size and form of business organization of enterprises; Simple selected financial ratios is the basis of the relationship between these models and any logic; the most complex problem is financial ratios calculated on the basis of which the financial statements of the quality of information included; international standards do not consider there is no information about whether the financial statements are drafted in accordance with international standards. Therefore, publishing company based on ratings by financial ratios and other information is sometimes misleading users of financial statements taking into account the conditions mentioned above. Financial indicators provided by the system can be used as a basis for the future development of a complex model of the financial situation of small businesses conducted evaluation. To investigate the financial indicators and financial indicators of the essence in order to show its role in the performance of the company; the study is based on analysis and evaluation in the role of special literature and business activities and performance and financial indicators of scientific publications. The evaluation of performances is linked to the index of financial indicators and other non-financial indicators. Financial indicators are not only based on the ratios but also key financial figures from the financial statement form the auditing report. Besides that, the evaluation figure should look insight the non-financial indicators which are normally tied to the strategic planning or key decision making process, it is usually benefited the company in the long term. The non-financial indicators are stated as under the following paragraph for the concern.

The financial indicators are included the revenue, assets, and profit, which can be directly found in the financial statement in the auditing report. Revenue is related to the earning ability of the company, which is the normal indicator in the performance evaluation, revenue is an important figure for the company’s operation; assets could be reduced the potential risks related to the liability, offset the risks; the profit is a key indicator which is outcome of the operating in the company. To increase the profit, there are two possible ways: they are up the revenue and down the expenses in the current financial years. The board is tied the performance evaluation of the performance of the Chief Executive Officer (CEO) in the operating of the company. That means the profit is a key important figure in the evaluation. As a result, the profit is still the figure of the consequence of the expenses. In a word, profit is a form index of the expenses. In the professional services suppliers are around the upgrade the revenue, for example the advertising package, internet system upgrade, marketing survey and other services and reduce the expenses, such as the employees training services, internal control consultation and IT system and other services. These professional services can be maximum the outcome of the operation, which is can be directly forced to the revenue and expenses. Therefore, these three direct financial figures can be three key financial indicators.

The quality service attributes could be measure the performance of the auditing services because these attributes can be defined the building blocks of quality in a service environment, these attributes are separated into four categories: timeliness, or service duration; integrity, or service completeness; reliability, or service consistency; and customer satisfaction, which can be defined as service value(Applegate, 1997). Based on these attributes, this table can be developed.

Figure 2: Four Attributes Categories

When adopting NPV, an issue occurs in NPV calculation, which connected to the evaluation methodology of the discount rate. Multiple risk factors is being considered by the risk premium. However, it is inevitable that the influences of these factors work on counter directions. It is not obligatory that each of the risks should meet the standards of partial risk premium when a risk premium is added. Sometimes, the addedrisk may be quantified partial risk; however, sometimes it may not. For example, if we add a risk premium of 5% for the risk factor, the service price will rise, which will lead NPV decreased manually. So that if we assume that this risk not occurs, this will manually decrease the NPV. Furthermore, the rule that how the different elements distribute will influence the distribution rules of NPV.

The major issue is that NPV distribution probability is not normal. It is one of the reason that why we take modern techniques analyzing methods into consideration when making investment valuation, such as sensitivity analysis, decision tree, scenario technique, Monte Carlo technique, real option, etc.

When some variables are changed, the sensitivity analysis will take the level for NPV into consideration. In this case, in order to make the decision that if an investment should be rejected, the investors will determine that whether an anticipated change in the determinant variables matters enough or not. However, this method has to be made in different scenarios, which means the decision tree analysis, even though we take the management level into consideration. Furthermore, the scenario analysis represents a particular case of Monte Carlo analysis.

Three “E” evaluation models

English et.,al. (2010) stated that the performance audit (PA) focus usually selects to ignore that to design a system to estimate to evaluation of the long term partner hope during the operating phase with a private sector, which is the challenge this study is investigating. From the view of this study, the keys to any PA are evaluating economy, efficiency and effectiveness (the three Es).These three important for selecting the auditing firms because the auditing outcome is required economy, efficiency and effectiveness.

The key consideration of selection

From the view of this study, the keys to any PA are evaluating economy, efficiency and effectiveness (the three Es). However, the core is to determine from this study, because instead of a “watchdog”, effectiveness auditing is a “sheepdog”. The insights which internal evaluation procedures provided are necessary. According to the three “ E” evaluation models,  the performance of the auditing can be easily evaluated. From the view of this study, the keys to any PA are assessing economy, efficiency and effectiveness (the three Es). But their nature is contextually defined, because instead of a “watchdog”, effectiveness auditing is a “sheepdog”. The insights which internal evaluation procedures provided are necessary. However, they are not necessary and sufficient to evaluating the achievement of the three Es in the PPPS mature operating stage. In the auditor selection, it should be consider whether to select the big 4 or not and the price factor in the beginning of the selection.

The first question of selection is to consider on whether to select big 4 as the auditing services provider. Lai (2013) stated in his article that the examines auditing reporting of Big 4 Auditors Versus non-big 4 auditors, the suggestions are that clients are more risky than other clients and are able to exert more influence than other clients on non-Big 4auditors;non-Big 4 auditors are less risk-averse than Big 4 auditors; comparing with Big 4 auditors,  the rest auditing companies imply that their degree of their willingness, which would probably to stress the management problems of issues or to limit discretionary accruals, is not strong as the precedent ones. That means that if selection is big 4 accounting firm, the outcome will be less risky, high level of discretionary accruals and more experience in the auditing service.

In the second question, the company will consider the price of the auditing service. Fatemi (2012) stated that in order to get insights in to the effect of audit payment structure and selection rights of auditor on auditor independence and client investment decisions, he adopts the experimental markets. Fatemi found out that the preference of a firm manager is that he is probably more likely to invest under a fake quotation, which is usually called as lowballing, setting in high return than when auditors are a flat rate. Speaking of manager investigations, at the very beginning, auditors usually attribute a higher precision and accuracy to investigations, which indicate that high manager investment than tests that suggest low investment. However, the accuracy assessments differentiate from time to time. Speaking of investor choice, according to the outcome of the accuracy assessments in the test, they remain no change constantly. Not only unreliable auditing but also disagreements with managers have negative influence on the auditor retention under choice of manager, with only the former affecting retention under investor selection. That means that if the manager made a decision on the auditing service, they are willing to select the lower price auditing firms and auditors should agree with them and perform well in the process of the auditing service. On the contract, the former can be affected the investors’ selections. Generally, the decision will be the lower price, and higher return on the investments for the auditing service, also auditors should perform well and provide additional service.

There are four problems that companies who provide audit services should pay attention to. First, a comprehensive plan must be planned. Second, a comprehensive risk degree evaluation system must be established. Third, prepare future risk responses to weaken or wipe out the influences of risk. Fourth, fully functional project organization structure should be established, including who is in charge, who is/are capable to finish what kind of work and who is responsible for each work content breakdown.

To the organization part or companies who provide audit service, the charges of audit, charges of consulting and charges in total is much higher, if the customers is from to the industries, which known as “sin” (Leventis, 2013). Furthermore, the study offers proves, which indicate that the degree that the customers from the “sin” industries being charged by the audit organization or companies is closed related to the degree of its major political genes and culture thoughts as well as the degree of “sinfulness”. “Sin “industry is related to alcohol, firearms, gambling, military, nuclear power, and tobacco. Therefore, these firms are higher auditing fees.

The fees which are affected to reduce in the current and consequent audit

Regulators, investors, investment professionals, auditors, and researchers have been arguing a lot on the topic that if an auditor’s neutrality will be influenced by the charge of audit Markelevich&Rosner (2013).

The finding is that in multivariate tests, when controlling for other fraud determinants and indigeneity among the fraud, non-audit services (NAS), and audit fee variables, we find that while the charge and total charge of the NAS, it is more possible that its mistake and negligence will be found and charged by the SEC, audit fees are not.HigherNASfees may cause economic bonding, thereby leading to reduced audit quality. For this research, the company should consider to reduce the cost of the unrelated costs for the company.

The benefit of the internal control

Salerno (2006) stated some benefit can provide to the company, which lacks of strong internal controls can result in increased risk in investment and operational costs. It mentions that benefits of strong internal controls can help provide better information in the management of the company and reduce the possibility of irregularities and errors in financial reports. It states that strong internal controls also have regulatory benefits, including a reduced risk of litigation and more credibility with U.S. regulators such as the Internal Revenue Service or the Federal Trade Commission. In the process of the performance selection and evaluation, the company should look close to the internal control inside the service provide firms, because the internal control could enhance the service performance?

Methods

There are three complicate questions should be solved: how the clients select the engaged auditing companies, how to evaluate the performance of the auditing engagement, and how to assess the combination of the service and fees which are applied for next years’ auditing engagement election. To complete these three questions, the data will be collected on the hand for the three years annual report figures from Fiscal year 2011 to Fiscal Year 2013,and main case is related to the PWC and China National Petroleum Corporation (CNPC), 

How the clients select the engaged auditing companies;

Based on the annual report of the CNPC, the provider of auditing services are including the auditing report and internal control report. For the auditing report, the auditor should express the true and fair view on whether the auditing reporting are complying with the accounting standards and related laws,regulations and rules for the prior years’ financial figures and internal control report is mainly related to the internal control advise on the weakness of the internal control and corporate government and other disclosures under the law and relevant regulation or rules. These two main responsibilities are made up the duty of the auditing services under agreement between the PWC and PNPC. In the perspective of PNPC, it is willing to upgrade the profit with the help of internal control advice from the PWC and disclosure of the accurate financial figures on the auditing report which can reflect the decision of the investors to increase the investments for the PNPC shares. These two main services are bought for the auditing service packages are the auditing report and internal control report for the interests of the shareholders and related regulations’ requirement for the disclosures.

ASARE & ASARE (2012) stated thatthe author has developed a model which relates toreport users’ confidence on the auditing report beyond the internal control over financial reporting (ICOFR) disclosures. This model recommended investors’ confidences will upgrade based on the consistency of the message of two audit reports, they are auditing report and internal control report. According to this model, the author believes that the lower confidence in the disclosure of whole-map or general material mistake in the presentation of the report compared with the specific account material mistake of the disclosures. These two assessments are lower than the confidence assessments are lower than the confidence assessments associated with the unqualified ICOFR report. The author still believed that these two auditing reports can motivate the investments judgment. The author has tested two reasonable tests to prove this statement. Firstly, the 65 equity analysts have demonstrated that the share price of the list company’s share decreased based on the their unqualified auditing report or internal control report (describing either an entity-level or an account-specific material weakness); secondly, 70 average investors evaluated the same company but were randomly assigned to three conditions (same adverse control conditions as in Experiment 1 and an unqualified ICOFR condition). The findings are as hypothesized and support the notion that the apparent inconsistency between an adverse internal control report and the auditing report undermines confidence in the SAR. Finally, confidence in the auditing report and internal control report influent the investment judgments (risk of stock price decrease) and decisions. Therefore, the auditing report and internal control report are both important to the investors, which provided the insight of the list company not only financial information, but also the strategic planning in the future. As a consequence of the detailed disclosure of the auditing report based on the auditor opinion whether it is qualified opinion or unqualified opinion, investors have more confidence to invest inside the list company because of the well-qualified auditing report. Auditing report and internal control report are as a bridge between the investors and the list company, called the “agency”. The shareholders are willing to read more accurate strategy and financial information on the auditing report and internal control report so that it can reduce the investments risks associate with the significant investment decision. Besides that, the list company is also willing to attract the investments from the investors from the share markets, so that the company has sufficient money to develop and expand the company. Combined with these urgent willing to disclosure of the information, auditing reports are come out. Therefore, the auditor is responsible for the financial information whether it complies with the requirement of the relevant accounting standard; and whether it is given a fair and true view with the financial statement; to express the opinion on qualified or unqualified opinion on the audit report.

As we discussed above that, the company should consider the two significant parts: they are whether they select the big 4 or not and the price issue in the selection of auditor. Apparently, CNPC selected PWC as domestic and overseas auditor. There are too many auditing firms in the country of the China, why the company selected the PWC as an auditing partner. Based on the combination of four contributes and 3 “E” evaluation model, these two models should be analyzed in the case of Between PwC and PNPC.

The four contributions are following: timeliness, or service duration; integrity, or service completeness; reliability, or service consistency; and customer satisfaction. And also, 3 “E”model are related to the economy, efficiency and effectiveness. The combined two models together, in addition, the company would like the adding value to the Company in the process of the auditing services. There are three parts considered together, combined two models and adding values to analyses the cooperation of the PWC and PNPC in the three years cooperation in the auditing, and why PNPC selected the PWC as the Auditor partner in the auditing engagement.

The general performance of the auditing firms

The public accounting report (2012) disclosed the global performance measures of the top 10 accounting firms in 2012. It states that the combined gross revenue of big four DDT, PWC, KPMG and EY increased to 10.6% in the U.S. Grant Thornton International Ltd. posted the highest revenue growth by percentage at 10.4% to $4.182 billion. Deloitte's revenue has exceeded that of PwC by $213 million. However, the revenue positions have totally changed, the first four place have totally changed in the FY2013 only contained two Big 4 auditing firms, they are also PWC and DDT. Other Two have totally been out of the top 4 revenue; the result can be shown in the ranking for FY2013 in the Appendix A. No matter in China or USA, PWC is always the top two for the revenue, so that the performance of PWC internationally is good and reputable in the auditing service.

Timeliness, or service duration

The official website of CNPC (CNPC.com.cn, 2014): as an comprehensive multinational energy enterprise, China National Petroleum Corporation covers multi fields and industries including: oil and gas exploration and production, refining and chemicals, natural gas and pipeline and sales and trading; oilfield services in geophysical prospecting, drilling, logging and downhole operations; construction of oil and gas field surface engineering, pipeline construction and refining plants; production exploration equipment, drilling and recovery equipment, professional pipe, electrical equipment, etc. Capital management, financial and insurance services; unconventional oil and gas resources, biomass and other renewable energy. The range of the services which CNPC provides is wide and also according to the annual report, the total revenue of PNPC has reached more than 2,000,000,000,000 in from 2011 to 2013. Which can be finished within the certain the timeline and duration in the auditing process. Concern with the regulation for the list company, annual report should disclose the annual report within four months after the financial year date (31st, December). The auditing firm should also complete their duty (i.e. auditing report) within 4Months, except otherwise required in the engagement letter.

Integrity, or service completeness

From the auditing report from 2011 to 2013, these three years are fully completed. These reports have given a view on whether to comply with accounting standard from the CICPA and HKCPA together. Is that service completeness? No. Besides that, the auditor also provided the internal control report in a term of auditing services which will be enhance with the company’s strategies for a long term benefit. Corporate governance is vital to the corporate, PWC also provide the professional opinion to benefit the company in a term of corporate governance. Therefore, the service is completeness in the service.

Reliability, or service consistency

The revenue of PWC has kept in first place for couple of years. That means so many clients are choosing them as the first choice when they need to audit service. For this instance, PWC is reliable and trustful. Also they always keep talent person to work for them, said thePricewaterhouseCoopers United States announced a new report, "delivered results: Growth and value in a turbulent world," the survey results from the first 15 PricewaterhouseCoopers Annual Global CEO Survey key talent show, it is still the most important problem that how to hire a high quality employee and how to make him stay with the company. According to the results of this study, almost or even more than half of them stand for the point of view that the core competitiveness advantage is the most important quality of the employees. And the challenge to find, to make this kind of employee stay and to continuously contribute to the organization is one of the key issues of organizations development. At the same time, about two of the third of them, the number among the surveyed in the US is even higher, stress directly that it would be very helpful if they can have more time and energy on concentrating to develop their business leadership and the storage of their elite employees (PR, 2012). The meaning of this is that PWC is focus on the talent employees to work with them and earn the profit for them in a term of employees’ team, not only in a field of auditing but also in the major of the transportation, oil and gas or ships, they are good at other major filed rather than the auditing, therefore, they can provide professional knowledge in the other field rather than the accounting standards. This group of the talent person called the complex talents, who are working for the PWC. From this respective, PWC are more reliable in the cooperation.

Customer satisfaction

Financial Executive (2003) reports on the results of a survey conducted by the Saratoga Institute, a PricewaterhouseCoopers LLP Human Resource Services unit, that examined how companies are dealing with the uncertainties presented by the U.S. economy in 2002. The study found that one major way companies approached this subject was to restructure their businesses and shift operations and staff. Areas that received the greatest focus were related to healthcare and other compensation controls that have a bearing on benefit costs. The study also indicated that most companies have implemented some type of merit-pay or other pay-for-performance measure to spur bottom line numbers.

Economy

The cost of the auditing fee for 2012 is CNY 61,000,000. The total revenue of the PNPC is CNY 2000,000,000,000. Apparently, the auditing fee is 0.003% of the total revenue of the corporation. From the figure of the auditing fees are considerable high. However, this figure put this figure in to the total figure of revenue, this figure is considerable low comparable to the total revenue. How to measure that the expenses are reasonable? This was a key issue in the pre –auditing to discuss on the price of the auditing service. This figure sound reasonable percentage for the service fee for the state-owned companies such as PNPC, other state owned bank. The auditing fees are all around this figure that is CNY100, 000,000. For example, Industrial and Commercial Bank of China Limited ("ICBC"), which audit fee is around the CNY100, 000,000. In general, the state-owned companies auditing fees are all around the CNY $100,000,000 and all of these companies are all the customers of the big 4 auditing firms.

Efficiency

PR (2013) reported that new poll of PricewaterhouseCoopers American company recently conducted a webcast more than 600 business people, improve your bottom line through eco-efficiency, and found 52 percent of respondents ranking high or increase eco-efficiency a priority. The PwC opinion polls showed that companies are more efficient and eco-through to reduce the impact on the environment will be more emphasis on efforts to promote financial savings and establish a competitive advantage in the marketplace. PwC also launched a new report called "less can be more: for a better bottom line and the environment," the company providing innovative strategies to consider ecological benefits. The efficiency is the most important factor in the cooperation between the PNPC and PWC. As the professional accounting, the cost of auditing services, include the fees of the auditing; the fees are also including the expenses of the transportation, meals, postage and other related expenses. Normally, this costs are excluded the normal auditing fees, that is out-of-pocket expenses. As usual, these amounts of the money are significant of total fees. For this respective, recently years, PWC has save a lot of money on this kind of expenses throughout the auditing service. They offered employees CNY180 per employee/ Per day, including the meal and other surcharge of the travel. Therefore, PWC has a significant amount of money for clients PNPC and PWC is efficiency.

Effectiveness

Interior suppliers are leading the way among automotive segments with a median revenue growth of four percent, according to PwC.The majority of suppliers than they do efficiency (cost-) effectiveness (income) as well. Interior suppliers exhibit benefit the greatest progress and body supplier (ranked the top performer in the 2012 study) slightly retracted in performance. Exterior suppliers improved in effectiveness but regressed in efficiency. Powertrain, chassis and electrical component supplier effectiveness declined.(PR,2014). The three auditing results demonstrated that figure of the PNPC increased annually from 2011 to 2014. Therefore, PWC is effectiveness in the process of the auditing service.

Adding value

The main services they provide as follow: Audit and assurance, business recovery, Forensic Services, internal audit and IPO and etc. (PWCCN.com). Besides that, the revenue figure of PNPC increased each year under the auditing of PWC. That means PWC not only provide the Auditing service to the PNPC but also the internal control advices to the clients (PNPC) in the three years employment from 2011 to 2013. These three years, most of the ratios increase. Furthermore, the PWC should keep the good relationship with the PNPC in a term of the auditing services. On the consequence, the PWC provide the adding values to the PNPC in a term of auditing services. Therefore, PNPC is willing to cooperate with PWC through the fees are comparable high with the other auditing firms. The professional services they provide by PWC are needed.

Dao& Rama (2012) stated that advisory Committee on the audit profession (ACAP), the Ministry of Finance, the U.S.Department of Energy was established, has recommended that all listed companies must have shareholders approve the auditor choice. Data 1382 Company as December 31, 2006 from a one-year, we found that audit fees in the firm and auditors approved by the shareholders voting rights are high. The study also found that the company began to have a shareholder vote to pay higher fees than the company stopped the shareholder vote. In the shareholder vote to select the company and the auditor (1) the possibility of a subsequent restatement of the smaller (2) abnormal accruals low. Their findings are consistent with the experimental results, as well as the mandatory auditor selected shareholder vote debate provides empirical grounding.

As a summary, the company should consider the combination of four contributes and 3 “E” evaluation model, these two models. In addition, the company should think what expectation adding value auditing team will provide to the auditing services. After that, the company will make a decision on what audit firm will service for the company. However, the relationship of the client and auditor is a key factor for long-time cooperation or short-term cooperation.

As a normal relationship between the supplier and clients, the client could also consider these two models factors to consider that which supplier clients should select as the cooperation partners. What the adding value to the clients. What are the relationship should I keep in the long term. After these considerations, the suppliers are selected. Also, in the process of decision, potentials risks are taken into consideration what auditing firm can be selected as the cooperation pattern in the process of the decision making process of the service supplier selection.

How to evaluate the performance of the auditing engagement

Daugherty and Fennema (2014) summarize the study, "The Effects of Offshoring Audit Tasks on Jurors' Evaluations of Damage Awards against Auditors'' (Daugherty, Dickins, and Fennema 2013). In the past decade, Big 4 firms have started to offshore audit tasks of their U.S.-based audit clients to affiliated offshore entities (AOEs) in India. Their study examined a potential cost of moving domestic procedures to foreign locations increased damages awarded by potential jurors following an audit failure. Results suggest that jurors award greater damages against the auditor when tasks were performed offshore, than when performed in the U.S. However, the level of auditor judgment required by the audit task had no effect on damage awards. These findings suggest there may be unintentional consequences of auditor offshoring.

How to examine to audit service quality, the relationship between audit firm’s size and performance? This Study gives a brief introduction to evaluate the human resource related and capital related elements, including the professional training of audit quality, auditors’ education degree, and work experience of thee auditors, etc. From the aspect of market division and occupation, we can divide this sample into 3 categories: local business, regional business, and national business. According to the empirical results, it is positive correlated of the scale between accounting firms and audit quality three accounting firms. Among the national audit offices, that correlation is positive is the high ratio of local and regional audit firms. Relationship between audit quality and financial performance is positive. Positive correlation between the national audit offices is the high ratio of regional and local audit firms.

To evaluate the performance of the auditing engagement, the performance of post-auditing should be included in the evaluation, the final product not only the audit report and advice from the auditors. We can find the ROE indicator to show the performance of the audit in the post audit. The indicator should be around the improvement of the Company and actual financial figures in the annual report for the engagement between PWC and PNPC.To assess the annual report of PNPC from FY2010 to FY 2012, some ROI indicators are showing in the following parts.

Million CNY 2010 2011 2012

Revenue  1,465,415 2,003,843 2,195,296

Assets 1,656,368 1,917,586 2,168,896

Profit  139,871 132,984 115,323

Figure 3: the key figure of annual report from 2010 to 2012

These figures are demonstrated that from 2010 to 2012, the revenue increase every year from the 1,465,415Million to 2,195,296 Million, nearly 50% increase from 2010 to 2012. In addition, the amount of assets also increased from 1,656,368Million to 2,168,896 Million. On the contract, the profit conversely decreases from 2010 to 2012; the figures are 139,871 Million in 2010 and 115,323 Million in 2012. Therefore, for these indicators, this is a key performance indicator in the firm. PWC has a positive impact on the figures present and also the strategy improves. And also, CNPC are all Forbes top 10 members from 2011 to 2013, the reputation is so good. Furthermore, CNPC is also the top 10 revenue companies in China from 2011 to 2013. Therefore, revenue, assets and Profits are three important indicators to evaluate the performance of the auditing services.

The auditing services provide the auditing service to the clients, and also the internal control advice to the company to increase the sale and reduce the cost. In the progress of the auditor, they would like to reduce some unnecessary costs and upgrade the amount of the revenue. For this purpose, the client is willing to maximum their profit for the interests of the stake holders and shareholders; the reason is that profit is the result of the revenue minus the costs.  Besides that, Demydyuk（2011）stated that Select the relevant key performance indicators include both costs and revenue-driven measures to be evaluated. In all major world markets using data from the service industry, demonstrates the revenue or profit-driven KPI, consistently applied, will be more likely to lead to better financial performance than that based on service drive indicators or operating costs is a mixture of representatives of revenue targets and cost-push indicators. On this content, profit is the result of the revenue and costs. As a consequence, profit is the most significant variables to measure the outcome of the service. For example, the internal control advises on avoid the dual role for the employees who are both an accountant and payroll to protect the potential fraud. The purpose of this suggestion is to against the potential costs related to this type of trade. Assumed the revenues are kept, therefore, profit will be up based on this suggestion. Therefore, profit is a key financial indicator.

The PWC provided the service not only the auditing service for the prior years’ financial figures, but also the internal control advisors in the long-term. If the profit reduced, which does not means the performance for the PWC is not good because these Figures are the results of the prior financial years figures. For the duty of the PWC, only provide recommendations on the weakness on the internal control and corporate governments. The CNPC can accept the recommendations or reject the recommendations on the weakness. Therefore, if profit is going down, which does not mean PWC did bad in the purpose of the auditing service. The nature of the internal control is only good advises based on the fact of the corporation prior’s governance. In the engagement, only CNPC is the actual decider in the game.

Besides that, the NPV is the most important financial indicator to calculate the return on services. Based on the calculation above that

NPV=-Io+∑_(t=1)^N?〖CFDt/〖(1+k)〗^t +(VR n)/〖(1+k)〗^n 〗

With: Io= the amount invested;

CFDt= the cash flow produced in the year t;

VRn= residual value (in the last year, n);

n= the number of years in which the project will produce cash flows;

k= the discount rate

According to the engagement between the PWC and CPNC, the amount invested on the auditing services is CNY 74Million in 2010,CNY70Million in 2011, and CNY 61Million in 2012, from the service fees contents; we can found that the auditing service fees decreased sharply each year from 2010. CFDt can tie close to the figure to the profit; there is no discount rate in the equation. NPV equals 139,797 (-74+139,871) in 2010, NPV equals 132,914(-70+132984) in 2011, NPV equals 115,262 (-61+115323) in 2012. The result indicates that the NPV reduced with the service fees decreased throughout the period. The dilemma can be discussed, whether reduced services fees can be reduce the outcome of the service. Certainly, it can be a challenge for the service suppliers to provide a perfect and nice work performance due to unreasonable service fees. The incentive of the auditors will reduce the performance in the process of service. As can be seen in the calculation, NPV is a key indicator in the evaluation in the process of the services.

The basic objective of accounting regulation by promoting reliable financial information, are in order to promote investors’ confidence. Related to this goal, while the recent regulatory measures on financial reporting (ICFR), and provides internal control audit (IC audit) legal responsibility to improve the internal control management. Different views on whether to insist on IC audit gradually increase the reliability of financial information, and thus the confidence of investors, especially in the presence of management responsibilities. Our notification behavior of investors and managers of this debate surveys of individual and joint impact of these two regulatory bodies. Laboratory experiments, research and IC audit management responsibilities affect the market price of its antecedents: IC consumption, financial reporting internal control management personnel manager of information disclosure and investor confidence. As a result, from the experimental market reactions suggest that investors do not reflect the behavior of managers, because investors in various decision-making, a staff basically more uncertainty. We found that managers encourage independent audit responsibilities and IC managers, flowers chips to improve the reliability of the financial statements. In addition, disclosure of information to improve the management of IC audit the accuracy of, and responsibility of managers did not. On the opposite side, it is true that the 2 managing agencies are connected to each other; however, they are each other’s bench member, according to the outcome of investor confidence and market prices. Our results are very important to policy makers, because they show that it is necessary to consider the impact of different regulatory managers and investors on. In addition, from an efficiency point of view, our results indicate that both IC audit and management responsibilities may not be necessary in order to improve investor confidence, and in turn the market price (Wu & Tuttle, 2014). It is does influence the results of internal control that whether equity incentive is executed, which is well known as stock and stock options or not. It is crucial to work on the executive compensation, considering the motivation from management level and the organization structure who would probably emphasize the potential impact of the internal control issues. Therefore, internal quality control research performed before the auditing should concentrate on the organization’s assets, and company culture, and management style. We found that the degree of management level’s willingness against internal control and significant equity incentives (MW), and support for management to provide equity incentives to reinforce the concept that exists between the company's internal control negative evidence. Further analysis shows that (1) Equity Incentive control problems more effectively reduce the corporate level; (2) restricted equity provides greater incentive than the unrestricted equity; (3) than the CEO CFO incentives motivate internal control quality more significant impact. All members of the Board of Directors who make these views on the proposal for compensation and directors who approve these recommendations of the Remuneration Committee is important. They argue that both the level and type of equity incentive compensation design should encourage managers to consider investing in strict internal controls (Balsam, Jiang,   & Lu, 2014).We questioned the supervision, procurement resource inputs and internal audit functions of the Audit Committee if there are effects of the external audit of internal audit assistance dependent values. In assessing internal audit quality, professional standards to guide external auditors consider oversight, as well as allocation of resources, internal audit functions. In addition, in order to promote higher quality, a number of organizations outsourced to external auditors independent internal audit services. However, the oversight role, commitment of resources, and outsourcing strategy to strengthen the internal audit function is not cost-free alternatives. Although the results of previous studies on the quality of internal audit to assist the internal audit and the consequent dependence of these aspects of the external audit function, little is known about the value of these features can be divided to provide assistance to affected. We introduce internal audit assistance, supervision and influence, resources, commitment, as well as external auditee waivers for new measures to produce different effects from dependence on internal audit assistance. When our results are consisting with the external auditors, internal auditors on higher value tasks (not just more tasks) increased commitment to the supervision of the Audit Committee and / or resources, and internal audit functions. Although we found that outsourcing of internal audit to assist economic advantages, these advantages are increased oversight by the Audit Committee of the commitment and resources to alleviate the internal audit function within the company. In addition, our results indicate that in order to enhance the status of the internal audit organization, companies should not only consider the person in charge of the internal audit department's position, but the oversight functions of the organization, including executive suites are also informal influence and Audit Committee(Abbott, Parke, Peters ,2012). In the PWC and PNPC case, the PWC did quite well in the process of the auditing service for the internal control, so that the figure of PNPC is greater than other companies.

What is more? As prior payment term of the payment in a fix rate, the performance based payment system should put forward. The payment system should apply the model of fix rate plus the performance based payment system. In other word, payment is based on the advice or suggestions which they enhanced the performance of clients. They have the bonus pay. As a consequence, the auditors are more incentives to find the potential risks and improvement advices based on the bonus pay. Receive a signing bonus to work harder, so signing bonus can be used as an incentive for employees (Van Wesep, 2010) .Using data on the widespread profit-sharing schemes in Taiwan, exploring whether companies take into consideration earnings quality in the pay-performance sensitivity of employee profit-sharing bonus, and whether corporate governance helps improve the alignment. Results show that the sensitivity of profit-sharing bonus to earnings performance is increasing in earnings management. However, in firms with strong governance the pay-performance sensitivity of managed earnings is significantly reduced. The results are vigorous to controlling for firm characteristics and to different earnings quality. They are important implications for the effective use of profit-sharing plans (Wen-Hsin Hsu, 2013).

As a summary, the evaluation of the auditing performance, three important indicators should be researched; they are revenue, assets and Profits. Also, the outside reputation is also such as ranking in Forbes and ranking in the nation. What is more, the indicators should be linked to internal control of the corporate governance in a long term which is the most important in the development. The suggestion would be the company should imply the performance-based bonus to the auditing firm if they provide the professional suggestions to the clients which are enhance the productivity or grade up the revenues. This is could have a great impact of the development of the clients’ performance.

We summarize the return on investments indicators they are as follow::

Financial indicators: revenue, total assets and profits;

Environmental indicators: reputation and ranking

Insider indicator: internal control procedures and corporate governance.

How to assess the combination of the service and fees which are applied for next years’ auditing engagement election

In the Fiscal Year 2013, the CNPC has announced that the auditing service will be engaged with KPMG, the auditing fees are 53Milliom (CNPC.com). The PWC has done a great job in the process of the auditing service. Why CNPC changed the auditing services engaged partner. The official explanation from CNPC.com is that the maximum service term has reached. Therefore, the KPMG has a new service partner in the process of auditing services.

The reason why change the auditing firm and KPMG continued to service

Based on the disclosure of the board decision, the change of the auditor decisions based on the auditing years limit from the requirements of the state owned assets supervision and Administration Commission (SASAC) and The Ministry of Finance (CNPC.com, 2014). Besides that, the auditing services are bidding among the auditing services firms; the lower prices will win the service package, i.e. auditing report and internal control report. Therefore, the change of the PWC is Inevitable, however, the KPMG become the latest auditor as the result of the bidding which the price is lower.

Based on 204 auditors of the two accounting firms’ survey, we found that the relationship between auditors and clients, commitment to the auditors, the client (i.e, customer commitment) to measure the development of fair treatment for auditors and support the view is received from the client. A higher level of customer commitment is bringingmore value-added services (e.g., management proposal opinion). The results showed that the customer a fair view of the auditor is to build strong relationships with customer’s auditors is essential. A higher level of service closer relations beyond the core audit requirements. That means that, the clients are willing to the cooperation relationship in the process of service. From the clients’ respective, they would not like to change the auditor frequent, they did not want explain the common questions again and again. As a consequence, the company will do the repeat jobs in the following years. Though the reason will be an important factor in decision of the service supplier, the price is the most important factor to continue to cooperate in the long-term.

Thesummaries of PWC have indicated from 2010 to 2012 as follow and apply these indicators to the service engagement to the KPMG and CNPC in 2013.

Financial indicators

There are four financial indicators from 2010 to 2012; they are revenue, assets, profit and NPV. Among these four indicators, NPV and prices are the most important indicators.

NPV=-Io+∑_(t=1)^N?〖CFDt/〖(1+k)〗^t +(VR n)/〖(1+k)〗^n 〗

With: Io= the amount invested;

CFDt= the cash flow produced in the year t;

VRn= residual value (in the last year, n);

N = the number of years in which the project will produce cash flows; 

k= the discount rate

The FY 2013 Figures are showing as following:

Million CNY 2013

Revenue  2,258,124

Assets 2,342,110

Profit  129,577

Figure 3: the CNPC’s figures in FY 2013.

As can be seen in the Figure 3: NPV equals 129,534 Million (-53+129577), which is more than 115,262 in 2012. That means the company invested less and return willbe more than prior year. Besides that the other Figures are all beyond the performance in 2012. That means the service will be performed well in the 2013.

Non-financial indicators

The non-financial indicators are related to four attributes categories: they are timeliness, or service duration; integrity, or service completeness; reliability, or service consistency; and customer satisfaction; and Three “E” evaluation models, they are economy, efficiency and effectiveness.  In addition, the company should look insight the auditors’ internal control. To evaluate the performance in the FY 2013, the analysis is as follow:

Timeliness, or service duration

In the engagement of the Timeliness or service duration is one financial year 2013. The auditing report and internal control report should complete within four months after the 31st of December 2013. The auditing engagement should passed by the board. Therefore, service term is normally one financial year. The renew or reengaged with new auditing firm should also passed by board.

Integrity, or service completeness;

In the result of FY 2013, KPMG still performed well in the process of the auditing service. All auditing services are performed well not only auditing service but also internal control report. KPMG covers a wide range of all services that enterprises need. Generally KPMP’s service covers all the three aspects that enterprises need: growth, control and profit. More specifically, they are but not limited: audit service, internal audit service, information risk management, taxation, consulting services and etc. Auditing service is the most well-known sector of KPMG’s service, including regional statutory audit report and the Group's internal audit reports. KPMG always stressed those meticulous checks on the basis of corporate financial data, to further understand the essence of the problem of enterprises. The internal audit service of KPMG is to assist clients onmanagement and internal control review and provide independent advice on all aspects of the company to senior management. Professional information risk management including: information security, e-commerce security, business continuity management, project risk management and IT strategy. KMPG’s taxation focuses on to help companies to fully enjoy the national and local authority’s tax relief policies, and fully consider the impact of foreign tax, to provide practical recommendations to improve the economic efficiency of customers. Tax professionals provide advice on personal and corporate income tax in taxation, customs duties and other related matters. Therefore, the services that professional consulting organizations provide is not just the sole service originally asked. With the professionals from the organizations with elite and comprehensive methods, they are capable to find the other potential need the enterprise may need, and help to correct the existing or potential problems. On the other hand, except for helping finding problems, they are also capable to provide growth analysis and growth decision making, helping find the proper direction, analyzing SWOT. Therefore, when we select KPMG, we are getting a professional third eye to have a close look at the enterprise strength, opportunities, weakness and threats. The integrity, complete service they are capable to provide is another crucial factor that the comprehensive consultancy should be chosen.

Reliability, or service consistency

Reliability is one of the most important factors that should be considered and difficult to be measured when we choose an auditing service provider. Reliability refers to whether a company can consistently fulfill their commitments made to customers, when this business really do that they will have a good reputation and won the trust of customers. In traditional markets, reliability includes cost performance, initiatives to fulfill commitments and information security. in other market, they are still suitable. The advance consulting organizations such as KPMG, with complete regulations and rich experience to perform contract, consciousness to follow professional norms and laws. Along with customer satisfaction, they two makes the key soft criteria judges in the service industry.

When audit service’s reliability increases, the customer’s reliability may increase accordingly, according to the definition and influence of customer reliability.

The rise of the Western theoretical study of customer satisfaction market behavior of enterprises had a certain impact on customer reliability, because when customers are more satisfied,their repeat purchase tendency may stronger. So since mid-1990s, the study of customer reliability has aroused another round of focus and discussion.

About customer reliability, now it is generally divided into three academic schools. One is that the high frequency of purchase that is customer reliability, the second is that customer reliability is the emotional attitude of repeating purchase, positive attitude towards customer orientation represents the degree of inclination of the products and services. The third is the emotional attachment and behavioral orientation combine trips, that the true customer reliability should be accompanied by a high repeat purchase behavior oriented attitude. These three have one thing in common, namely repeat purchase frequency level is an important indicator of customerreliability.

Customer reliability can be broken down into three different levels: behavioral reliability, intentional reliability and emotional reliability intentions. Behavioralreliability is the actual behavior demonstrated by the repeat buying willingness; intentional reliabilityis the intention of the customer that in the future he may repeatedly purchase; and emotional reliability is customer’s attitude toward the company and its products, including the customer’s willingness to actually promote the company's products to the surrounding people. The measurement method of customer reliability: the preference against the product of customer, customer’s degree of tendency to switch to another service provider, the frequency of purchase and the total purchase amount.

The indicators of customer reliability usually contains: customer’s tendency of repeat purchase, purchase ratio, customer’s attention meter on the product brand, the sensitivity against price, the attitude against competitors of the product and recommendation behavior etc. generally, there are two categories that influence customer’s reliability.They are quality of service and customer satisfaction.

Customer satisfaction

Customer satisfaction usually process three parts: brand image, quality expectations, perceived quality and perceived value as a precondition variable satisfaction are factors affecting satisfaction. Customers complain and reliability is the result of variable satisfaction. Essentially, customer satisfaction reflects a state of mind of customers. Satisfaction is not an absolute concept but a relative concept, including reliability, which mentioned and introduced in detail above, professional degree, tangible degree and similarity degree. Professional degree is an enterprise service personnel possess specialized knowledge, skills and professional qualities including: the ability to provide quality services, customer courtesy and respect, effective communication skills with customers and etc. Tangible degree refers to tangible expressions of tangible services and facilities, environmental, instrumentation and service staff to help customers and caring. Service itself is an intangible product, but clean and service environment, special seats for children provided by the restaurant, McDonald's led the children in singing and dancing waitress, etc., can make the service of the intangible becomes tangible products together. As for auditing services such as KPMG, it covers multiple service fields, its service environment also covers a wide range, such as the attitude of employees, problem feedback and efficient approaches suggestions, the dress of the professionals and etc., all of them offers a professional and reliable environment.

QOS is a subjective category, it depends on customer expectations of service quality. QOS is to measure the level of service delivery, which is how to meet customer expectations. Quality of service delivery should meet customer expectations consistency, is a judge of service, in the form of employee’s attitude. The degree of quality of service is from the comparison of customer’s expectation and the actual service performance that customer receives. If the experience exceedscustomer’s expectations, then the perceived quality is high; on the contrary, if the experience did not reach the desired level, then the perceived quality is low. QOS is divided into "technical quality" and "functional quality" categories, the former refers to the output of the service process, ie that customer is getting something from the service; the latter refers to thatthe customer how to get such a service. One is the service of results and the other one is the service of process. At the same time, there are some factors that impact the quality of service performance, including tangibility, reliability, response, assurance and empathy etc. Tangibility refers to service products, "visible part", such as a variety of facilities, appearance and other equipment and service personnel. Reliability refers accurately complete the promised services. Responserefers to companies willingness to stand ready to provide customers with fast and efficient service. Assurance refers to service and friendly attitude and competence, it can enhance customer service quality corporating confidence and sense of security. Empathy refers to genuine concern for the customer to understand their actual needs, so that the whole service process full of "human touch."Entity quality includes entities to support the quality of the product itself and the whole service process. The interaction refers to the process of consumer contact with staff, while the company's quality refers to the company's image quality. All products customer satisfaction is provided by an organization, including services, activities, circumstances, and processes etc.

Customer satisfaction is the degree that how customers judges the quality of service, which can be perceived into feelings status after comparing the effect of its expectations formed.Therefore, the quality and attitude of employee is crucial to customer satisfaction.

On the other hand, the employee satisfaction also influences the performance of the organization, which affects the customer satisfaction though the service performer, the employees. Because when the employees are more satisfied with the employer, they are more likely to delivery and execute the values and cutler of the organizations, to take initiative during the services. The values of KPMG create a sense of shared identity within the KPMG organization, which is a network of member firms in over 155 countries. They define what KPMG and its employees stand for and how we do things. The values help KPMG and its employees to work together in the most effective and fulfilling way to meet customers’ needs. KPMG has won the award “Employer of the Choice” in different countries and regions for multiple times, which insures that KPMG is one of the most outstanding service organizations.

Economy

The KPMG’s price is lower than the PWC providing in the term of the service. In the KPMG’s portfolio, the most of the Top 500 Forbes Companies selected the KPMG as the auditing services partner internationally. For the content, the service of KPMG is professional and qualified on the auditing report. In a simple sentence, higher quality service but low cost in the engagement with the KPMG.

Efficiency

The efficiency will contribute in the term on the auditing outcome. According to the annual report and announcements on the exchange markets, the disclosures on the auditing report are under the requirement of the related accounting standards,law, regulation and rules. In addition, internal control report enhances the performance of the CNPC in the future and also meets the requirement of the regulations. The most important factor is to disclose the financial information on time. Therefore, they are efficiency to complete the duty of the auditing service.

Effectiveness

KPMG’s working is effectiveness on the process of the auditing work. The goal of the report is for the interest of the shareholders and related disclosure requirements. The most effective is that the audit report provided more accurate financial figures under the auditing services from the KPMG. The purpose is to increase the investors’ confidence on the financial figures which the company disclosed in the report, the reason is that the auditing report will help the investors to make significant decisions on whether to invest on this company or not. In the term of the KPMG service, the CNPC attracted the significant investments from the exchange markets. Therefore, KPMG’s services are useful and straight forward.In summary, the auditing service is effectiveness.

Potential risks

The company should evaluate the potential risks when it is engaged with the auditing firms such as confidential information leak risk, reputation risks and other related risks when make a decision which party to engaged on the service. For the evaluation of the auditing firm performance, risks are key factors which will cause the fail in the task in the final stage. Simona-Iulia (2014) stated thatcurrently, economic environment complexity, volatility and unpredictability are a reminder that businesses face many risks every day. According to the traditional approach, risk is an evil, which is inevitable and must be removed. This is why the companies are now forced to spend significant resources to manage risk. Transparency of risk is what people are looking for; therefore, risk identification in an organization and management become more and more necessary to the success and survive of a company. The method that to avoid and/or reduce the negative influences that risk may cause and/or turn risk into opportunity has become very important in companies. Enterprise risk management is a new concept of traditional practices that is to revolutionize the risk management in an integrated and strategic way in the enterprise’s system. Studies are using multiple synonyms to study enterprise comprehensive risk management, global risk management and strategic risk management. Enterprise risk management implements a new approach to deal with risk, which was invented in the end of the 20st century:  the holistic methods. This risk-based approach - that is, when various types of threats and risks which become increasingly diverse, and may lead to greater interaction than individual risk injuries, which raised the need for risk management and increased the maximum level of the company's management. Risk is inevitable in a company, and to understand each one’s interaction under the possibility. This is crucial, according to their impact on the company; to build a risk classification will be greatly helpful. In   the traditional approach of risk management, the function is to limit the threats and losses, which the risks may cause and increase the possibilities of opportunities the risk may bring to. However, according to several organizations, risk is for the potential gains, and the risk management process does not change radically. Improved version of Enterprise Risk management is the scope expanding result of the traditional risk management. The new risk management model, adapted to the complexity of the current economic situation confers global perspective to prepare the organization to face the adverse effects of any eventer a series of events. Therefore, to identify and to understand the risk and how to minimize the damage and/or negative influence it may cause and to increase the possibility of opportunities it may bring to must be a common sense of each company staff. Therefore, the company should be aware of the potential risks associated with cooperation with the suppliers.

To decide which company cooperates the next year, the company should consider the legal respective under the law, regulations or rules first and then financial indicators are taken into the considerations; they are revenue, assets, profit and NPV. Among these four indicators; the company should consider the non-financial indicators: The non-financial indicators are related to four attributes categories: they are timeliness, or service duration; integrity, or service completeness; reliability, or service consistency; and customer satisfaction; and Three “E” evaluation models, they are economy, efficiency and effectiveness.  In addition, the company should look insight the auditors’ internal control. At last, the company should find the potential risks such as confidential information leak risk, reputation risks and other related risks when make a decision which party to engaged on the service. After these steps, company could select the engaged service partner.

Board the indicators to the return on investment on Service

Not only these indicators can be used in the process of the auditing service, but also these indicators can be applied in the whole investment return on services. And also these can be used for the supplier selection on all purposes.

Impact on the internal rate of return of assurance, which refers to the attitude and the ability to implement value-added services to provide value-added services venture investors when. From the perspective of investors analyze the attitude, effective communication beneficial impact entrepreneurs to develop and implement decisions, thereby reducing business risk, improve internal rate of return; implementation of value-added services from the perspective of the ability to view,  the overall quality of risk investors are affecting start-ups to increase the value and return on investment are important indicators, embodied in its judgment assessment capabilities, risk management and value-added service capabilities.  The value-added service quality has a positive impact on the internal rate of return. And Impact on the effectiveness of internal rate of return. Effectiveness of risk refers to whether investors to provide value-added services, as well as value-added services in the implementation process if and entrepreneurs to communicate effectively in order to promote the implementation of value-added services. Venture investors, through their knowledge, experience to help start-ups strategic planning, management consult inland other help to raise venture capital and corporate profits increase, and in the process of implementation of the strategy, the venture capitalists and entrepreneurs to strengthen the management of communication, supervision and implementation services to help improve the investment value increases andprofitability.Can be drawn from the above analysis, the validity of value-added services have a positive impact on the internal rate of return. Consistency refers to whether the venture capital value-added services to achieve the desired objectives. Business operations and profitability is mainly measured by sales margin, return on assets and other indicators. Sales margin and net profit mainly refers to the ratio of sales revenue. In the eyes of venture capitalists, the higher this ratio, will promote growth and increase corporate profits, and ultimately promote increased internal rate of return, so it is proportional to the internal rate of return. Return on total assets is the ratio of the average balance of total profit and total assets, reflecting the utilization efficiency of enterprise assets. The higher the rate of return on total assets, indicating that firm size is increasing; profits continue to grow, so that the internal rate of return will continue to improve.

Can be drawn from the above analysis, consistency has a positive impact on the internal rate of return. Have a reliability impact on the internal rate of return, which refers to the ability of venture capitalists to fulfill its commitment to value-added services that venture capitalists are committed to helping companies develop strategies, fund raising, etc. can be fulfilled, and when business enterprises encounter difficulties in operation, investors can try to help solve. A major feature is the coexistence of high-risk and high-risk investment returns, and in the course of business operations, companies will face a variety of risks, coupled with the lack of entrepreneurial management experience in themselves, then added much-needed investors fulfill their commitments services, by helping entrepreneurs develop strategies to raise funds and other ways to help start-ups out of the woods, and increase revenue growth so as to realize profits. Thus, the reliability of an important positive impact on the growth and increase the company's internal rate of return.

For the indicators of return on services, they are all applied for the whole service selection decisions. To analysis of the social media service supplier selection for the company, the analysis is provided.

Who are qualified for the services under the related laws, regulation and rules;

Consider the financial indicators, revenue, assets, profit and NPV. However, the NPV is the most important factor in the consideration among the social media provider and application of the approved price is also an indicator of the decision factor;

Consider the non-financial indicators, four attributes categories: they are timeliness, or service duration; integrity, or service completeness; reliability, or service consistency; and customer satisfaction; and Three “E” evaluation models, they are economy, efficiency and effectiveness; compare among the suppliers;

Besides the normal supplier service package; what adding services can provide in the term of the contract;

Look insight the suppliers’ internal control to find the government structure, a key leader in this project and their capacity in the term of the service package;

Identify the potential risks related to cooperation with the supplier, such as supplier’s potential lawsuit, financial situation, reputation and other factors.

The decision maker considers these factors as a whole; the selection can be made easily and reasonable, in the bids, normally supplier’s price is a key indicator in the competition. In addition, the measure can be adopted in the board the indicators to return on the services.

Conclusion

In the conclusion, to decide which company to cooperate the next year, the company should consider the legal respective under the law, regulations or rules first and then financial indicators are taken into the considerations; they are revenue, assets, profit and NPV. Among these four indicators; the company should consider the non-financial indicators: The non-financial indicators are related to four attributes categories: they are timeliness, or service duration; integrity, or service completeness; reliability, or service consistency; and customer satisfaction; and Three “E” evaluation models, they are economy, efficiency and effectiveness.  In addition, the company should look insight the auditors’ internal control. At last, the company should find the potential risks such as confidential information leak risk, reputation risks and other related risks when make a decision which party to engaged on the service. After these steps, company could select the engaged service partner. These indicators could be used all supplier selection and evaluate their performance.

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