An Empical Research Of Relationship Between Financial Report Internalcontrol And Earnings Management

A series of finance fraud cases and earnings management cases occurred betweenthe listed companies one after another from21century at home and abroad.Forexample,Enron,Worldcom and the other American large public companies havehappened accounting scandal after2001.Such as GOME’s chairman of the Boardhave been investigated and low-quality milk powder of Sanlu and so on. These casesare all related to weak internal control.The listed companies internal control systemand the reliability of financial reporting have become the hot spot of the study.In orderto regulate the listed companies internal control and information disclosure, regulatorsin China have issued some laws and regulations successively.Such as Shanghaistock exchange and Shenzhen stock exchange separately issued the laws“the listedcompanies internal control guide in Shanghai stock exchange”and “the listedcompanies internal control guide in Shenzhen stock exchange”. These guidelines areall required the listed companies disclosure the establish and perfect condition ofinternal control in which annual financial report. The Ministry of Finance, the AuditCommission, the CSRC, the CBRC,the CIRC have jointly announced the laws,whichare “the enterprise internal control basic standard”and“the enterprise internal controlsupporting guidelines”.Which maked the listed companies internal controlinformation disclosure requirements changed from voluntary disclosure to mandatorydisclosure.So far, enterprise internal control regulations system completed basically inour country.The qualities of financial statements is effected by the behaviors of earningsmanagement, which authenticity decrease severely. Low-quality financial statementswill lead to faulty decisions for the investors, investors make great account of theinternal control system in rencently years, because this system can guarantee the listedcompanies′financial statements.But whether current internal control system ofChinese listed companies can discover and prevent earnings management, andimprove the qualities of financial statements finally, this article made a detailedresearch into this question.We collect financial data in Shanghai a-share listed companies (eliminate thefinancial industry) from2008to2010as research samples in this paper. According tocertain standards, we assess the listed companies internal control quality in the scoringmethod, and we use operational profits which get from the modified Jones modelinstead of the earnings management variable,in order to obtain the relationship between listed companies’ internal control quality and earnings management.From thesample regression results,we can get the relationship between listed companies’internal control quality and earnings management appear significant correlation.The whole samples will be respectively two group according to the different yearsor whether voluntary disclosure internal control self assessment audit report.The results found that as internal control regulations perfect and internal controlsystem completed basically in our country, more and more the listed companies beganto disclose internal control information in accordance with the relevant laws andregulations,and ask the intermediary organizations to audit their internal control selfassessment report. Which can improve the internal control quality and effectivelyrestrain the earnings management behavior.At last, on the basis of the research conclusion,this paper also put forward toimprove to the listed company’s internal control quality,and analyzed the deficiencyof the article in the process of writing.