The Effect Of Internal Control Deficiencies And Audit Opinion On Real Activities Manipulation

We examine whether firms that file internal control weakness disclosure reports as part of the reporting requirements under Supporting guidelines of internal control, exhibit higher levels of real activities manipulation compared to firms that do not file such reports. Using firm-level data,2008-2013, we find a positive relationship between firms reporting internal control weaknesses and real activities manipulation. Overall, our findings suggest that firms hat file internal control weakness disclosure reports are more prone to using real activities manipulation as a form of earnings management.The empirical results show that there is a significant positive correlation between the internal control defects and real earnings management.. The higher the real earnings management of the company is, the more serious the defect is, the more obvious the phenomenon is. There is a linear correlation between the internal control audit and real earnings management. It is reflected that the audit of internal control can effectively restrain the real earnings management, and the more obvious the audit opinion is issued. But in the presence of internal control defects in the company for internal audit has no corresponding inhibition, but there are stimulating effect. In addition, the effectiveness of the system for China’s current internal control and disclosure system in the reality of capital market economy good applicability provides empirical data, but also for China’s regulators insist on to internal control deficiencies for the core indicators of the effectiveness of internal control of the evaluation principle, trying to through the improvement of internal control deficiencies in the identification and disclosure system to further enhance the effectiveness of internal control provides assurance practice.The effectiveness of the system for China’s current internal control and disclosure system in the reality of capital market economy good applicability provides empirical data, but also for China’s regulators insist to internal control deficiencies as core index on the effectiveness of internal control evaluation is trying to through the improvement of internal control deficiencies in the identification and disclosure system to further enhance the effectiveness of internal control provides assurance practice.