| The identification standard for internal control deficiencies is a yardstick for the enterprise to carry out the internal control assessment.It is also the basis and guarantee for the enterprise to disclose the internal control information with high quality,and also a magic weapon for the enterprise to improve its internal control quality.The China's Basic Standard for Enterprise Internal Control and its implementary guidelines,which are similar to a series of policies issued by the U.S.Securities and Exchange Commission(SEC),only introduce the general requirements of the internal control deficiencies classification and identification,but have no specific operational guidelines for a set of effective internal control deficiencies identification standards.Because each enterprise makes differences in industry,operation scale,development stage,risk preferences and so on,and also has different interpretation of the general requirements of internal control deficiencies identification standards in the internal control standard system,the identification of internal control deficiencies and the disclosure of internal control assessment information inevitably show a certain degree of chaos in China capital market.Until the beginning of 2014,the China's Securities Regulatory Commission issued " Public issuance of securities company information disclosure and reporting rules No.21--the general provisions of annual internal control assessment report".According to the internal control standard system,the board of directors should classify the internal deficiencies of the enterprise as financial report and non-financial report deficiencies,as well as quantitative and qualitative deficiencies with their own characteristics,and draw up specific criteria for the identification of internal control deficiencies applicable to deficiencies of different grade.After the issuance of this rule,the problem of information disclosure of internal control deficiencies has been improved.However,the board of directors is the first person to be responsible for the construction of internal control.From the formulation of internal control deficiencies identification standards to the identification of internal control deficiencies grade,the board has the discretion in the identification and responsibility of internal control deficiencies.The board operation is very complicated and regarded as a "black box".As the core of corporate governance mechanism and the main body of enterprise strategic decision,the board is a bridge connecting shareholders and management.In theory and practice,the recognition of the board functions mainly focus on the tradeoff between the monitoring and advising functions.Agency theorists focus on the monitoring function of boards,but it is also recognized that the performance of the monitoring function depends on the advising function of boards.The resource dependence theory focuses on the advising function of boards,but it is also accepted that the advising function helps the board to better fulfill the monitoring function.Seeing that the monitoring and the advising function of boards of different types are different,the outside directors of different career backgrounds differently influence on the advising and monitoring functions of boards.Thus,the application of the discretion on formulation,judgment and responsibility of internal control deficiencies identification standards will also have different effects.Therefore,we need to explore the logical mechanism behind the selection behavior of internal control deficiencies identification standards,which are determined by the board,and meet the regulatory requirements,and provide empirical evidence for the supervision of internal control assessment.Above aims are the purpose of our study.This research mainly uses the theoretical and empirical research methods as well as qualitative and quantitative analysis to carry out its research.This research firstly introduces relevant system background and theoretical basis on internal control deficiencies identification standards,and then reveals the mechanism that the board type and the accounting expertise have influence on internal control deficiencies identification standards after deeply analyzing the status quo of the disclosure of internal control deficiencies identification standards.It empirically tests the influence factors and effects on that the board type and the accounting expertise draw up and adjust the identification standards for internal control deficiencies,and finally draws conclusions and puts forward some countermeasures and suggestions.This paper focuses on the following problems.first,it multi-dimensionally analyzes the status quo of the disclosure of internal control deficiencies identification standards in listed companies;second,it is empirically tested that the board type and accounting expertise influence on the formulation direction(strict or loose)of internal control deficiencies identification standards;third,it is empirically examined that the board type and the accounting expertise have an impact on the following adjustment direction(more strict or more loose)for internal control deficiencies identification standards;fourth,it is empirically studied the governance effect of internal control deficiencies identification standards on internal control deficiencies by formulated by the board.The conclusions are as follows:First,through the statistics and analysis of the status quo of the disclosure of internal control deficiencies identification standards,the research finds that most of the listed companies are able to carry out the standardized internal control assessment report format,classifies internal control deficiencies of different grade as financial report and non-financial report,as well as quantitative and qualitative identification standards.However,generally speaking,the quantitative standard disclosure is better than qualitative standard.In the measure of quantitative internal control deficiencies identification standards,the items in the balance sheet and income statement are widely used as the source of assessment index,which basically remain the same during different assessment periods.In general,the listed companies adopt the relative rate standard to set the critical value of the quantitative internal control deficiencies identification standards,but the absolute standard is also an important way to set the threshold value for the quantitative identification standards of non-financial reports.In terms of the relative rate standard for quantitative internal control deficiencies identification standards,the listed companies try to maintain consistency between multiple assessment indicators when setting its critical value,and there is little change in each indicator year.The identification standards for internal control deficiencies show a certain industry difference between different industries and manufacturing subclass.The difference is large in different industries at the same assessment period,and the difference is not significant during different assessment period.The differences between different industries should be significantly greater than that between the manufacturing industries.As for the identification standard change of internal control deficiencies,listed companies tend to adjust more stringent deficiencies identification standards and reduce the ratio threshold of the relative rate standard.About the standard change frequency and the standard change degree,the rangeability of the financial standard is greater than that of the non-financial standard.Secondly,the research examines the influences of the board type on the formulation direction(strict or loose)of internal control deficiencies identification standards,and further studies the moderating effect of outside director's accounting expertise.The empirical conclusions are as follows:When the board type is outside,the board of directors is inclined to formulate strict identification standards for internal control deficiencies.In other unchanged conditions,compared to the non-financial report internal control deficiencies identification standards,the outside board tends to formulate strict financial report internal control deficiencies identification standards.To further study the moderating effect of outside director's accounting expertise,we find that different professional backgrounds of outside directors play different roles in the formulation of identification standard for internal control deficiencies,and that outside directors with accounting expertise are more responsible for the role of consultants and use their professional expertise to better play the advisory function.We also find that outside directors with non-accounting expertise,as the monitoring role,carry out the risk identification and prevention of internal control with the help of more stringent deficiencies identification standards,and strengthen the supervision and restriction of controlling shareholders and management.Thirdly,from a dynamic perspective,the research empirically examines the impact of the board type on the subsequent change degree(more stringent or more relaxed)of the identification standards for internal control deficiencies,and further studies the moderating effect of outside director's accounting expertise.The empirical conclusions are as follows:When the board type is outside,the board of directors is inclined to adjust more stringent identification standards for internal control deficiencies.In other unchanged conditions,compared to the non-financial report internal control deficiencies identification standards,the outside board tend to adjust more stringent financial report internal control deficiencies identification standards.To further study the moderating effect of outside director's accounting expertise,we find that different professional backgrounds of outside directors play different roles in the adjustment of identification standard for internal control deficiencies,and outside directors with accounting expertise are more responsible for the role of consultants and use their professional expertise to better play the advisory function.We also find that outside directors with non-accounting expertise is more as the "monitor"role and make use of their professional expertise to better play the monitoring function.Finally,the research empirically tests the governance effect of internal control deficiencies identification standards(strict or loose)formulated by the board on internal control deficiencies,and further distinguishes the different governance roles under different board types.The empirical conclusions are as follows:The identification standards for internal control deficiencies has a significant negative correlation with the existence and the number of internal control deficiencies.In other unchanged conditions,the more stringent the identification standards for internal control deficiencies formulated by the board is,the smaller the probability of internal control deficiencies,the less the number of internal control deficiencies,and the better the quality of internal control.Further studying the moderating effect of the board type,it is found that when the board type is outside,the more stringent the identification standards for internal control deficiencies formulated by the board is,the smaller the probability of internal control deficiencies,the less the number of internal control deficiencies.The main theoretical contributions of this research are as follows:First,the board type is restructured.According to the source of directors,we usually try to divide the directors into the four categories of internal directors,controlling shareholders directors,non-controlling shareholders directors and independent directors.And on basis of internal control theory and research results,we break the usual practice of classifying the controlling shareholder directors into outsider,and place it into the insider.According to the above director types,we restructure two categories of more internal characteristics of "insider-dominated boards" and "outsider-dominated boards"("inside board" and "outside board"),and carry out the following theoretical and empirical studies.Second,the research expands the influencing factors of the formulation of internal control deficiencies identification standards,and optimizes the relevant measurement indicators.It not only studies the formulation factors of the financial report and non-financial report internal control deficiencies quantitative identification standards,but also focuses on the formulation factors of the quantitative identification standards for material deficiencies and significant deficiencies.Third,from the perspective of agency theory and resource dependence theory,the research deeply analyzes the function mechanism of the monitoring and advising function of the outside board in the process of formulating internal control deficiencies identification standards.The research not only paies attention to the effect of the board type and accounting expertise on the formulation direction of internal control deficiencies identification standards from the static perspective,but also the impact of the board type and accounting expertise on the degree of subsequent changes on the identification standards for internal control deficiencies from a dynamic perspective.This research studies the influencing factors of the formulation and subsequent changes of internal control deficiencies identification standards by the view of the combination of dynamic and static perspectives.Fourth,this research studies the decision-making behavior of different directors from the changing direction of the formulation of internal control deficiencies identification standards,explores the deep mechanism of which the board of directors harnessing internal control deficiencies,develops a new research perspective on the verification of the governance efficiency of the board,and enriches the related literatures in the field of board governance and internal control assessment. |
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