Research On The Impact Of Internal Control Quality And External Audit Quality On Earnings Management

All the time,accounting fraud of listed companies and foreign capital markets frequently,so that investors suffered heavy losses,such as the 2001 United States Enron Corp because of financial fraud events that ended up filing for bankruptcy protection,2002 WorldCom accounting scandal broke out,the "Chinese first blue chip" Yinguangxia company in 2001 for the fictional financial statements to be exposed,Green Earth's fictional trading business and inflated assets was found in 2007,Edmond branch through false purchasing financial fraud was found in 2012,a series of chain reaction in 2017 LETV group's financial crisis,while the earnings management behavior of these listed companies financial fraud case and excessive closely related.Let us have to reflect on the current regulation of capital market and the control of earnings management.At present,the supervision of Listed Companies in China is not only supervised by the state,but also from the market,mainly by external auditing,as well as the gradual improvement of the internal control system of listed companies.We always regulate earnings management by external audit and internal control.Internal control is regulated from the enterprise itself,while audit is external power,and this combination of the two ways will be more conducive to reduce the degree of earnings management,and this joint inhibition will be applicable in different types of enterprises.Based on this,the paper studies the impact of internal control quality and external audit quality on earnings management through normative and empirical methods.In normative research,firstly,We have reviewed the concepts and relationships between the three parties of internal control,external audit and earnings management,on this basis,we analyze the mechanism of the internal control quality,the external audit quality alone and the joint suppression of the earnings management,and put forward 4 hypotheses.In empirical research,we take 2013-2015 years and 5712 listed companies of A shares in Shanghai and Shenzhen two cities as the research object,and selected the sample data,the construction of main variables selection and measurement and model analysis method,using descriptive statistics,correlation coefficient and regression test,to empirically test the inhibitory effect of internal control and external audit on earnings management separately and jointly.The hypothesis is basically verified: First,when the overall risk of the listed company is small,the higher the internal control quality or the higher the external audit quality,the smaller the probability of accruals earnings management.Second,there is a complementary effect in the process of combining internal control and external audit in the process of joint suppression of earnings management,external audit as a result supervision mechanism and internal control as a process supervision mechanism can significantly inhibit the accruals earnings management behavior of listed companies.Third,there is no difference in the complementary relationship between internal control and external audit in the process of jointly inhibiting accruals earnings management in enterprises with different overall risk,the combined inhibitory effects of internal control and external audit is not affected by the overall risk level of the enterprise,no matter how the risks faced by enterprises,no matter whether the enterprise in the operation and management of the defects,that can make the accrual earnings management behavior may occur,as long as internal control and external audit complement each other,we can significantly inhibit the enterprise accruals' earnings management behavior by the supervision of the whole process of the accrued earnings management of enterprises.The thesis finally summarizes the limitations of existing and future research direction.And combined with the conclusion of the study,we put forward some practical suggestions for enterprises,accounting firms and regulators to further improve the quality of internal control and external audit,as well as better play the complementary role of internal control and external audit.