Quality And Earnings Management-related Research Under The Background Of Internal Control Pilot

Since the21st century, there has been a world-wide attention on the frequent exposure ofmajor financial scandal and listed companies subsequent bankrupting or being acquired. And it hasencouraged people to start new understanding of internal control theory and the practical issues.However, both in the implementation of the internal control attestation system and theimplementation of the internal control audit system, the earnings management and financial fraudbehavior still occur frequently. This has sparked deep thinking: a internal control withguaranteeing the quality of financial reporting and risking aversion, why does not play its role?How to objectively conduct an effective evaluation?These phenomena and problems are triggering a new round research and trying about theinternal control in the global community. The U.S. Congress enacted the Sarbanes-Oxley Act,which is strict to internal control of the listed company and its disclosure issues rules from theregulatory point of view for the first time. The national regulatory authorities also have realizedthis situation: the internal control is not just their own management needs of enterprise, but alsothe needs of the external regulatory and social public. Recently, to speed up the construction ofenterprises’ internal control standard system, our Government has enacted important laws andregulations on the internal control of planning and regulatory issues. Such as, the Shanghai StockExchange issued the Shanghai Stock Exchange listed company internal control guidelines, in June2006. And in June2008, five ministries jointly issued the enterprise internal control basic norms ".In April2010, five ministries issued three supporting guidelines, not only to provides a commonstandard for corporate self-evaluation, but also to meet the information needs of the externalregulatory and the public. Shortly afterward, the five ministries formulate a specification pilotimplementation schedule. With a series of measures to promote and deepen, whether the internalcontrol pilot project achieved the desired results, become a hot research topics.In the view of the external regulators or the public, this article select the Manufacturing listingCorporation in Shanghai A shares and Shenzhen A shares as the research object in2011, one yearafter the implementation of the pilot. In the foundation of the realization degree of the five basicobjectives in the internal control, this article improved and devised the indicator system, whichcould quantitatively and objectively evaluate the quality of the internal control, and measure thelevel of internal control effectiveness, by the principal component analysis method of internalquality control index. On this basis, This article empirically analysises the correlation betweeninternal control quality and earnings management with the manufacturing sample in A shares andcompares the two sets of samples of internal control quality. Through the research, empiricalAnalysis confirmed a significant negative correlation between the internal control quality andearnings management.It showed that: the samples of pilot and disclosure of the company’s internalcontrol audit report on internal control overall levels were significantly higher than the non-pilotcompanies and not disclosed internal control audit report. And the earnings management degree ofthe former is lower than the latter, apparently.Along the main line of the study, this paper is divided into six chapters. First chapter section, abrief introduction to the topics of the research background and significance, illustrated the idea ofthis study, haven a overview of the content of the research, research methodology, and innovation,and provided a graphic description about the research idea; Chapter II, combing summarized thedomestic and foreign scholars’ research on internal control, earnings management and theircorrelation, and commenting; Chapter III, introduce the basic theory of internal control and earnings management. Interpret the root causes that earnings management occurred, and theinner necessity and the driving force of internal control "favored", as well as the associationbetween internal control and earnings management; Chapter IV, Empirical design ideas, includingthe sample and variable selection, research hypothesis and model assumptions; Chapter V, Theempirical analysis, including two aspects: descriptive statistics of two groups, correlation andregression analysis and further examination of the whole samples; Chapter VI, Summary theconclusions, put forward policy recommendations to be prospects for future research.