The Research Of Correlation Between Earnings Management And Internal Control

June2004, approved by the State Council and the Authorities Securities, the SME board in Shenzhen Stock Exchange was formally established, which provide SMEs with a more standardized and broad developing platform. SMEs are one type of enterprises which have more favorable developing prospects, in China’s market economy. SMEs have a very important position in national economy, and increasingly become an important force for supporting China’s sustained economic development and promoting social harmony. How7ever, with the Green Earth and others financial fraud cases happening, people began to pay more attention to the quality of financial information of listed companies.While financial information is the object of earnings management, earnings management and the quality of financial information have close ties, so earnings management is becoming one of the hotspots of accounting theory and practical circles researching. Further analysis, small plates listed company’s internal control is imperfect, which is the important one of reasons of financial fraud. The important one of goals of internal control is offering reasonable assurance that the enterprise financial report is true and reliable.It can be seen, high quality internal control can effectively inhibit earnings management behaviors of listed companies. This article will explore our small plates listed companies’correlation between earnings management and internal control by the empirical approach, provide strong evidence for small plates listed companies’ internal control improvement, inhibite their earnings management behavior, and have important theoretical and practical significance.Firstly, this paper reviews the domestic and foreign research literatures on earnings management, internal control and the correlation between earnings management and internal control, and then carries out corresponding theoretical analysis on earnings management, internal controls and the correlation between earnings management and internal control. Afterwards, the paper selecting2011small board of listed companies for the study, proposing hypotheses, selecting and building model, using descriptive statistical analysis and multiple regression method, analyzes empirically the relevance of earnings management and internal control. Conclusions drawn: High-quality internal controls can effectively inhibit the handling of the production costs, cash flow and discretionary fees, so effectively inhibit earnings management of real activity; and to some extent inhibit the earnings management of accounting choices, but due to many factors, the influence of internal control inhibiting the accounting earnings management is not significant. Finally, this paper proposes several suggestions on small plates listed companies:improving the internal control, establishing an effective incentive mechanism and improving the ability to business operations, and puts forward corresponding recommendations on regulatory authorities, investors, finally discusses briefly the limitations of this study and future research.