The Empirical Research Of The Relationship Between Internal Control And Financial Restatement

Accurate, timely and reliable accounting information is necessary for the effective operation of capital market. However, financial restatement of listed companies is becoming more common in recent years. To some extent, financial restatement reduces the quality of accounting information of listed companies, affects investors’confidence and improves the cost of companies’capital, it may also cause huge economic losses to the other companies in the same industry. The primary objective of internal control is to provide reasonable assurance to the truth and reliability of financial reporting, to improve the quality of accounting information. So, if highly effective internal control could suppress the occurrence of financial restatement to a certain extent, and improve the quality of accounting information?The paper’s research is as follows:First, combing the related literature from the following three aspects, the internal control and its effectiveness, financial restatement and the relationship between internal control and the quality of accounting information. Then, expounding the concept of internal control, the concept of financial restatement and the economic consequences of financial restatement, explaining the theoretical relationship between internal control and financial restatement based on asymmetric information theory and agency theory, coming out the theoretical conclusion that highly effective internal control can effectively suppress financial restatement’s occurrence. Then, from the theoretical relationship between internal control and financial restatement, putting forward the hypothesis, defining research variables, building Logistic regression model, and making a regression analysis based on the relative data of the A-share listed companies in 2010-2012. Then, dealing with the correlated variables like internal control and financial restatement by means of descriptive statistics, correlation analysis and regression analysis, coming to the conclusion that the presence of financial restatement is more likely to happen if a company’s internal control is defective, and making a robustness analysis of the conclusion through the method of replacing control variables. Finally, putting forward some proposals to improve the quality of internal control and pointing out the major deficiencies of this paper.