Study On Financial Reporting Fraud In Listed Companies Based On Internal Corporate Governance

The quality of financial reporting directly decides the fairness of economic system and the efficiency of economic function. Correct decisions made by the investors rely on objective and fair disclosure of financial reporting. The frequent financial fraud devastated the confidences of investors and the fairness of security market seriously, so governance on financial fraud becomes a hotpot problem. Enforcing the governance of financial reporting is the core issue when corporate governance is applied to accounting. External governing system has the key function, by which the external environment supervises the internal governing leaders, but it lacks timeliness and is costly, and would bring a huge impaction on companies and society. As an internal power, internal control system leaded by the board of directors, works on the corporate internal control system directly. Therefore, governance on financial fraud should depend on the improvement of the internal governing system mostly.Based on the aspect of the internal corporate governance, the purpose of this paper is to prevent financial reporting fraud and improve the quality of financial reporting to research on the efficiency of corporate governance. The efficiency of corporate governance decides the environment quality of disclosing financial reporting and it would be reflect on the quality of financial reporting finally. This paper abides the routine theoretical study combined with empirical study. In the routine theoretical study, this paper research on the problems existing in the governance factors and the thoughts of improvement, by insisting on the direction of corporate internal control and keep the coexistent model with the board of directors and the supervisory board. In the empirical study, the author establishes an available verified relationship between the governing factors and financial reporting defraud, verifying the assumptions with the empirical evidences. Finally, comparing with the theoretical study results, the author comes up with sorts of reforming methods and suggestions.System is an artificial constrains which constructing the human interactions. The financial fraud, as well as other illegal economic activities, is not independent, which is the results of interaction between the people's intention and the various systems. The financing system results in the unique supply-demand contradiction in our security market. The low cost of equity financing is so attractive that the listed companies cannot reject. Furthermore, legal regulations do not work enough when the companies cannot meet the requirements of China Securities Regulatory Commission. Interest pursuing makes up the motive of the listed companies'financial fraud.As for the nature of corporate governance, it is firstly a system to allocate the rights and obligations among each party efficiently. Even though"The insider control"issue in china involves the management level, in fact, the main shareholders'controlling is the most important problem. They control the election of the board of directors and the supervisory board as well as the appointment of managers. The weakening function of supervisory board cannot be solved in a short period. Independent directors system has been implemented only for four years. Without well-functioned outside market, the single governing system cannot undertake the entire responsibility of supervising the financial reporting, by whatever the board of directors or the supervisory board their own. So in China, we should insist on keeping the coexistent model with the board of directors and the supervisory board, reallocate their responsibilities, and this is the right choice under our realities.The shareholder ownership is highly concentrative in China now, large-shareholders control the listed companies and convey the benefits to their own hands by their advantageous voting rights. Financial reporting fraud is a tool to conceal their misappropriate action and the absence of efficient supervision to the controlling shareholders creates a good condition to defraud. In the case of check-and-balance shareholder ownership, that many big shareholders govern the listed company together, the total shares they hold is big enough to restrict single-large-shareholder tyrannize the little ones. The now-operating shareholder structure innovation will solve this problem and bring the opportunity to create the check-and-balance shareholder ownership. Simultaneously we should advocate the integrity and faithfulness of the controlling shareholders and improve the relationships between the controlling shareholders and the little ones in order to enhance the investors'confidences.According to the background of the introduction of independent directors'system, the responsibilities of independent directors should mainly focus on supervising the related party transactions and preventing the financial reporting fraud. The independence is the soul of the independent directors, there are many factors that affect the independence, ultimately the important problems are as follows: the candidate, the incentive mechanism, the legal responsibilities of independent directors and so on. We can pay less attention on who select the independent directors, we should try our best to set up an efficient and opening personnel-recruiting market, so we must perfect all kinds of mechanism, especially the incentive and restrictive mechanism. Under the actual circumstance, we should enforce the juristic responsibility of independent director, raise the independent director's salary when the risks increase, so that the independent directors will pay more attention to the listed company and do well.Even though the system of audit committee system is welcomed by the globe, considering the realistic circumstance of our country, it is unnecessary to authorize the whole supervising right to audit committee, it is matched the audit committee original nature to authorize the rights to appoint and supervise of CPA. Audit committee establishment in our country is voluntary now. The establishment of audit committee in the listed company may make the quality of the financial reporting better. However, the audit committee manages a low efficiency, we should transit the audit committee establishment from a voluntary stage to a compulsive one.An important reason that the supervisory board does not work well in inspecting the financial reporting is because the board of directors and supervisory board do part of same work in inspecting responsibilities. In fact, the advanced system has never been lack of, other than how to coordinate the function of board of directors and supervisory board and make them in their right place. The numbers of supervisory board mostly come from within the listed company, they had a good understanding about the internal governing system and implementation, they have the ability of internal audit, so authorize the internal audit right to the supervisory board is appropriate. The audit committee leaded by the independent director is responsible for the external auditing, while the supervisory board is in charge of the internal auditing, and the same governing goal constructs the cooperative relationships between them. At the same time, "Company code" should guarantee the supervisory board to do their jobs independently and legally as to enhance the efficiency of supervision.In conclusion, the financial reporting lower the information asymmetries and make the corporate governance mechanisms operating effectively, simultaneously the listed companies will prevent the financial reporting fraud by setting a series of internal governing system, so the quality of financial reporting will be improved with the improvement of internal governance...