A Case Study On Internal Governance And Financial Restatement Of Sinovel

The financial report is the carrier of the listed company disclosing the financial positions and operating results, and is the main basis for the external investors to make investment decisions. In recent years, the financial restatement phenomenon that is called financial statement patches intensified, which is causing widespread concern around the world. The financial restatement is that companies restated previously published financial reports when they are finding and correcting the errors in the pre-financial reports. The US Government Accountability Office(GAO) considers the financial restatements are the performance of low quality of accounting information, is resulting in the defects of corporate governance mechanism and inefficiency of corporate governance. Therefore, exploring the influence mechanism on financial restatements by internal governance, can help to improve the quality of corporate financial information, so as to reduce the possibility of the listing corporation's financial restatement behavior.On March 6, 2013, Sinovel Group publishing company-error-correction notice, admitted that there were some mistakes in accounting treatment of financial statements in 2011. On May 29, for alleged violations of securities laws and regulations, Sinovel accepted an investigation by China Securities Regulatory Commission. This paper selects a typical case of Sinovel, based on the principal-agent theory and stakeholder theory, researches the financial restatement from the aspects of the internal corporate governance. By this case, we discuss Sinovel's financial restatements caused by improper revenue recognition issues, combining the internal governance and financial restatement, and concentrate on the researches of the board of directors, ownership structure, executive compensation and internal control. And then we analyze the serious economic consequences generated by financial restatements.By analyzing the case, we finally found the corporate internal governance defects will increase the possibility of financial restatements. Facing the increasingly serious problem of financial restatements, on the one hand, the government should vigorously improve the financial restatement system, and strengthen regulation of the listed corporation information disclosure; on the other hand, enterprises should actively perfect the internal governance mechanism, and improve the comprehensive level of corporate governance. Only by the common perfection of external regulation environment and internal governance structure, can we effectively curb financial fraudulent behaviors by corporate executives, and promote the perfection of the capital market.