A Review Of Internal Control And Financial Statements

Financial statements is the main carrier of the outward information disclosure of listed companies and the main access for the financial statement users to obtain the listed company financial condition, operating results and cash flow information and so on. Financial Statement Restatements do harm to the integrity and reliability of financial reporting. As one of the most obvious forms of low- quality financial reporting, Financial Statement Restatements may cause a decline of stock prices in the short term and an increase of the company capital cost, affecting the efficiency of resources allocation of the capital market. In recent years, many listed companies in our country have restated their financial statements, exerting a certain influence on the capital market. This phenomenon attracts great attention of many scholars. From the late 1990 s to now, there are many listed companies resort to financial statements to fix the mistakes in the financial reports every year. From 2001 to 2006, this trend is climbing, occupied the proportion of over 10%, while from 2007 to 2010, this trend is decreasing, but the overall proportion of restatements is still high. The goal of internal control is to guarantee legal reasonable management, asset security, fallible and true financial reports and other related information of the enterprise, improving their management efficiency and effectiveness, promoting the development strategy. An important reason of so many restated financial statements of listed companies is the major defects on the company’s internal control system construction and implementation and weak effectiveness of listed company internal control.As financial statement restatements are frequent, this paper based on the previous research of domestic and foreign literature, explores the influence factors of financial statement restatements, choice of motivation and economic consequences, try to find the key factors that lead to restate financial statements from the aspects of internal control of listed companies. An empirical analysis of large amounts of data on the restated financial statements and internal control found that the stronger internal control effectiveness of the listed company, the lower incidence of the restated financial statements; listed companies with Internal control major defects are more likely to resort to the restated financial statements; Based on the theory of institutional change, from 2012, the internal control construction in our country experienced from voluntary disclosure to mandatory disclosure. To test whether the intensity and method of internal control system change in different periods will cause the inhibition of financial restatement change. Finally based on the theoretical analysis and empirical research results, this paper put forward the measures and countermeasures for decreasing the occurrence of financial statement restatements from the perspective of internal control. We hope this paper can play a constructive role to regulate the behavior of stock market and listed companies.