A Research On The Relationship Between The Quality Of Internal Control And Accounting Conservatism In Chinese Financial Listed Corporations

ABSTRACT:Financial enterprises master a country’s economic lifeline, which has the characteristics of high risk. At present, continuous innovation of financial tools and financial environment vary from minute to minute, which have become the inevitable trend of internal control construction and risk management for financial institutions. Accounting conservatism is an important feature of earnings quality which has generally accepted in academic circles, the implementation of which can strengthen the risk supervision of China’s financial industry and it is an important measure to promote the reform of accounting system in China in line with international standards.This article mainly uses the empirical method to study the issue. We select the2007-2011data from the Chinese financial listed corporations as the sample. Taking the analysis and evaluation of information disclosure in financial enterprises as a start, we qualify the quality of internal control by using entropy method, which is more comprehensive and objective, then using the Accrual-Based Loss Recognition Model and Persistence of Earnings Changes Model to study on the quality of listed internal control and accounting conservatism in Chinese financial listed Corporation. Conclusions draw as following:(1) With internal control laws and regulations making strict requirements on the construction of the internal control and information disclosure in the listed corporations, especially in the financial industry listed corporations. Chinese financial industry listed corporations’internal control quality index showed a downward trend from2007to2011, which indicates the financial listed corporations in our country have improved their internal control.(2) Conservatism exists in Chinese listed financial corporations.(3) There is positive correlation between the quality of internal control and accounting conservatism in Chinese financial listed corporations.(4) Firms who enhance their internal control quality are more conservative than firms that fail to do so.