The Impact Of Internal Control Defects On The Restatement Of Financial Statements

This paper focuses on the impact of internal control defects on financial restatement behavior.Financial report is the main form of accounting information,the accurate evaluation of the financial report can provide stakeholders with effective decision support information,continuous supervision of business operations and cash activities.As an important medium for information exchange between management and stakeholders such as external investors,the quality of financial reports is related to the competence of management and the vital interests of investors.Therefore,in a booming capital market,a high level of financial reporting is very important.However,enterprises and their managers often produce low-level financial reports due to various immoral intentions.Financial restatement is the correction and remedy of accounting errors based on low level financial reports.Internal control is a kind of control method and procedure which is affected by the management level and the management level to improve the reliability of financial information and the operation efficiency of enterprises.Internal control has a significant impact on the quality of accounting information.However,the construction of China's financial restatement system is relatively lagging behind,and relevant studies focus on the causes and effects of financial restatement,failing to thoroughly clarify the causes and consequences of financial restatement.By combining theoretical analysis and case study,this paper explores the relationship and mechanism between internal control defects and financial restatement behavior.The financial restatement cases of ER-KANG pharmaceutical in 2017 and 2018 were selected to analyze the influence mechanism of dynamic internal control defects in the vertical time dimension and horizontal attribute dimension of financial restatement through combining corporate governance,stakeholder theory,information asymmetry theory,principal-agent theory and other aspects.It is found that the internal control defect is the mechanism of financial restatement.By affecting the quality of accounting information,the management,to some extent,meets the short-term interests and the financing needs of the company with the help of the historical internal control defect,but it lays hidden troubles for financial restatement.According to the public information of the financial restatement of ER-KANG pharmaceutical,this paper finds that the internal control defects during the history and restatement affect the disclosure of the financial restatement;During and after financial restatements,history and retell the internal control defects will further affect the market reaction of listed companies and public confidence,regulators for financial restatements reflects the economic essence of discipline and supervision also has a great connection with the quality of the internal control,at the same time,the listed company's internal control self-improvement after the financial restatement and restated in front of the internal control defects are highly correlated.In this paper,enriched the internal control and financial restatement behavior research,the enterprise internal control in the dynamic analysis in the behavior of financial restatement,through studying the impact of the mechanism and the influence of internal control of financial restatement process,for the management of listed companies pay more attention to the internal control construction,certified public accountants to improve audit quality and the broad masses of investors effective evaluation of the quality of the accounting information of listed companies to provide beneficial exploration,in order to promote the quality of information disclosure of listed companies in China,safeguard the rights and interests of investors,the majority of stakeholders.