Research On Effect Of Internal Control And Independent Audit On Earnings Quality

After a series of domestic and foreign financial fraud incidents, internal control and independent audit are increasingly being questioned as the two forms of internal and external oversight mechanisms. Some Western countries, such as USA, Japan, the United Kingdom, are doing to improve and try to improve both monitoring mechanisms and make the relevant provisions about the disclosure of self-evaluation report and audit report of the effectiveness of internal controls; In 2012, our internal control standards began to enter the new phase, the main board listed companies which meet the conditions should disclose annual report and the internal control self-assessment report issued by the management as well as the CPA’s audit report of the effectiveness of internal controls. Both constant improvement in the internal control system and more clarity of internal control standards have created favorable conditions for the study of the impact of internal control on earnings quality. In addition, there may be a combined effect of both internal controls and independent audit on earnings quality. Therefore, the test should be focused on the combined effect of internal controls and independent audit on the earnings quality.The research use both normative research methods and empirical research methods to test the effect of independent audit and internal control on earnings quality, empirical results show that the higher the quality of internal control can suppress manipulate earnings management behavior, thereby enhancing earnings quality; both internal control and independent audit have helped improve earnings quality as important mechanisms which guarantee earnings quality, but the relationship of mutual influence between them in earnings quality assurance process is not obvious, there are both necessity and space to improve the related internal control policies and practices continuously.The research of effect of internal controls and independent audit on earnings quality, not only on clarify the relationship among the internal controls, independent audit and earnings quality, but also provide policy recommendations on improving the two important mechanisms which ensure earnings quality, so that the Empirical research of internal controls and earnings management can be more substantial.