Research On The Correlation Between External Audit Characteristics And Internal Control Defects

One of the reasons for the vicious cases such as financial fraud, information disclosure offenses and illegal operation of listed companies is the lack of internal control. As we require public companies to disclose more and more internal control information, the internal control defect has also been more common attention. The internal control deficiencies of listed companies are affected by many factors, one of the important areas of concern is the company's external audit. As part of the audit supervision, the accounting firm shall audit and supervise the internal control of the enterprise from outside. On the one hand, external audit will bring a certain deterrent force to enterprises,indirectly prompted the management to continuously improve the internal control system, reducing the occurrence of internal control deficiencies at the source. On the other hand, external audit can play its basic function to supervise the real disclosure of the actual problems of internal control, improving the credibility of internal control information. Therefore, it is necessary to explore the role of external audit features in the internal control deficiencies of listed companies. This is of great practical significance to perfect the internal control system, prevent the occurrence of internal control defects and realize the protection of various stakeholders.In this paper, the domestic and foreign related literatures are reviewed and reviewed firstly, the subject and content of the research are determined according to the present situation of the listed companies in China secondly, and thirdly, the related concepts and theories of internal control, internal control deficiencies, external audit characteristics and internal control audit development process are briefly introduced. On the basis of the above,the paper analyzes the influence mechanism of external audit characteristics on the disclosure of internal control deficiencies, and puts forward relevant hypotheses. Then, this paper selects the A-share listed companies of Shenzhen and Shanghai Stock Exchange which disclosed the self-evaluation report of internal control in 2012-2015 as the whole research object, using the method of empirical study to test the relationship between the characteristics of external audit and the internal control deficiencies.This paper hopes to put forward some constructive suggestions for the listed companies in optimizing the governance structure and hiring and developing the external audits.Besides, external audit supervision can reduce the internal control deficiencies effectively,and improve the quality of information disclosure, and then promote the sound development of capital market. Through the empirical test, this paper mainly draws the following three conclusions: the larger accounting firm auditing the internal control of the enterprise, the less internal control deficiencies of the listed company; the listed company with the change of the accounting firm is more likely to disclose the internal control deficiencies; there is a positive U-shaped relationship between the audit term and the internal control deficiencies of listed companies, that is to say, with the extension of auditor's term, the probability of the existence of internal control deficiencies of listed companies decreases first and then increases.The conclusion will provide empirical evidence for the development of internal control external auditing of listed companies in our country.