The Impact Of Internal Control Auditing On Earnings Quality

In the United States, Enron, WorldCom and some other companies occur huge profits false financial scandals frequently, which led to a crisis of confidence in the market. At the same time, the regulation of capital market is useless. For this reason, in order to strengthen the responsibility of listed companies, in July of year 2002, the U.S. Congress issued a 《Sarbanes-Oxley Act》 (hereinafter to be referred as 《《Sarbanes Act》). This bill’s provisions 302 and 404 mention that CEO and CFO must be responsible on the design and implementation of internal control effectiveness in a written statement. It also requires the manager’s report on the evaluation of internal control over financial reporting should be disclosed, and get the CPA’s internal control audit opinion. In year 2011, China began request that those simultaneous listed inside and outside company must hire accounting firm do the internal control audit. In year 2012, the scope expands to the domestic main board listed company, which marked China’s internal control audit has entered a stage of mandatory disclosure.This report researches internal control auditing can suppress earnings management behavior, provide an empirical data to test the effectiveness of the internal control auditing, which is based on Shenzhen and Shanghai from year 2011 to year 2012 sample data. The results of this research show that the internal control audit has a significantly negative correlation with earnings management. Compared with those companies who does not disclose internal control auditing, the accrued and real earnings management degree of these companies is lower. The internal control audit not only restrain the accrued earnings management, but also suppress the real earnings management behavior. The conclusion of this article verifies internal control audit can promote the governed effectiveness of the quality of accounting information. It provides an empirical evidence to push forward the construction of standard compulsory internal control system steadily.