Can High-quality Internal Control Improve Earning Conservitism?

Internal control is one kind of mechanism between each system.department or responsibility,which is used by economic entity or organization to control its own internal production and operation activities.In June2008, five ministries-the Ministry of Finance.CSRC.CBRC,CIRC and the Administration of Audit jointly issued<Internal Control Basic Standard For Companies>,then based on this,they again jointly issued<Internal Control Accessory Introduction For Companies> in the year2010.Just under such a background,this paper tries to find the relationship between internal control quality and earning conservitism of the public companies in China according to the feature of our country’s constitution.The first part of this paper is introduction.which mainly introduces the research background,foreign relevant papers and main body of this paper.The second part is Literature Review,and in this part.firstly.we review all kinds of Chinese and foreign papers that dicuss the reason why earning conservitism exists,which provide a sound foundation for this paper below;then we review several papers related to internal control and internal control quality,which also provide a sound foundation for the inernal control quality evaluation system below,and at last we conclude foreign researches about relationship between internal control quality and earning conservitism.The third part is Theorical Analysis.we firstly define the internal control quality,that is the degree of validity of internal control.and then we build an evaluation system for interal control quality according to the characteristic of this research. After that, we try to analyze the influence of internal control quality on the cause of earning conservatism in order to find the relationship between internal control quality and earning conservatism.At last, we put up with our assumption——high-quality internal control can improve earning conservatism.The next two parts are about the empirical test and its result.We multiply the variable ICQ into traditional Basu model, and make a robustness test by another Basu model of3-year earnings in a row, whose regression outcomes apply to our expectation above.At last, we conclude this paper in the sixth part and put forward research area from now on.