The Empirical Research On Effect Of Internal Audit Quality On Earnings Management

Because of so many cases of financial fraud from 2000, the theoretical and practical experts started to focus on the issue about internal audit. How to establish a sound internal auditing department had became a hot topic. Earnings management has been the focus of the study in recent years. Internal audit is an important part of corporate governance. Whether does internal audit have inhibitory effect on earnings management? This research has practical significance.The paper combined standard research methods and empirical analysis. Internal audit and earnings management linked together bases on the function of internal audit, agency theory, contract theory and asymmetric information theory. The paper refers to a synthetic indicator, which contains affiliation, department of scale and motivation established. The synthetic indicator is the independent variable. Controllable accrual is the dependent variable, which is the way to measure the level of earnings management. The research selected the data of Shenzhen A-share listed companies on the Main Board in 2012. Control variables are company size, operating performance, the company’s growth and liabilities. The writer used the linear regression model and executed variables descriptive statistics, univariate analysis, multivariate regression analysis and further examination by Spss19.0 software. The writer analyzed the empirical results in detail. The results prove that there is a significant negative correlation between internal audit quality and accruals, and the higher the quality of the internal audit, the lower the earnings management. However, due to the coefficient is small, the internal audit function has yet to be excavated. The author has put forward the suggestions for improvement about the problems of internal audit.The paper not only contributes to research on the relationship between internal audit and earnings management, but also provides a new way of thinking about improving the quality of internal audit. There are some inevitable flaws at the same time. As the lack for the information about internal audit of listed companies, the author is not able to find the entire factors which affect the quality of internal audit, and there would be some deviations to measure the impact on earnings management.