Research on the Correlation between Internal Control and Earning Quality
|School||Dongbei University of Finance|
|Keywords||internal control earnings quality accruals quality|
In 2002, the United States occurred in the Enron scandal, followed by the emergence of a series of corporate scandals, corporate governance get people’s attention once again. U.S. Congress passed the Sarbanes-Oxley Act (SOX Act).according to the SOX Act and Section 404 of the 302 terms, management should ensure the effectiveness of internal controls, disclose material deficiencies on internal control, disclose internal control self-assessment report and hire auditors to audit. As the important role in corporate governance, as well as an important influence on the quality of financial reporting, internal control is closely payed attention in the economic, management and other fields.China’s capital market has been in a process of reform and improvement. During this period, the listed company’s internal control issues abound. In addition, inadequate internal controls make company risk, executives missing and other issues, it disturbed seriously the normal development of listed companies. In 2008, Ministry of Finance Joint China Securities Regulatory Commission,National Audit Office, China Banking Regulatory Commission and China Insurance Regulatory Commission jointly issued the Basic Standard for Enterprise Internal Control, requires the medium-sized enterprises to establish a sound internal control. April 15,2010 the five ministries jointly issued the Application Guidelines for Enterprise Internal Control, Guidelines for Assessment of Enterprise Internal Control and Guidelines for Audit of Enterprise Internal Control. So far, China has basically established a uniform system of internal control system. As China’s capital market continues to mature and continue to improve corporate governance, internal control system will continue to improve.At present, the relationship between internal control and earnings quality research papers is only beginning in 2009. In the published relationship between internal control and earnings quality empirical research articles, internal control measure is different, the conclusions are obvious conflicts, need to confirm the reliability of conclusions. This thesis selected the company which had internal control verification as the one that have an better internal control,and the company which occur financial restatements, fraud, and obtain non-standard audit opinion as the one that has material deficiencies in internal control.it use Jones model in cross-section of accruals quality as a proxy for earnings quality, through comparative analysis and regression analysis to test the quality of internal controls and the correlation between earnings quality. Study found that the quality of internal controls higher earnings quality is higher. We are in the knockout ST/* ST samples after the impact of the company, the conclusion remains reliable.It argues, on the one hand, should establish a recognized system of internal control evaluation criteria or evaluation of the credibility of a strong internal control classification system. It can help guide companies to master the "basic norms of internal control" and its supporting guidelines to improve the internal control situation. She can be a reasonable evaluation of internal quality control, evaluation of the results more reliable. On the other hand, an early warning system of internal control should be established. Enterprises can use financial indicators, corporate governance indicators and some other external information to create a viable early warning system of internal control system. it can be a guide to monitoring of internal control is good business tools, from management to risk management transition.This contribution is:First, we select the sample using a double standard, this measure of internal control may be more accurate, more reliable conclusions. Second, the extension of the internal control and the relationship between earnings quality studies.The limitations of this study:First, we select the sample using a double standard, it may bring repeated selection problems affecting the reliability of empirical results; second. This smaller sample size. In the study, some control variables did not pass the test, may be related.