Corporate Governance,Internal Audit Quality And Internal Control Deficiency

At the beginning of the 21 st century,a series of financial fraud scandals affected the world such as the "Enron Incident" and "WorldCom Incident".The internal control issue of listed companies once again caused widespread concern.The shortcomings of internal control of listed companies such as financial fraud,high-level corruption,and incomplete information disclosure have caused a single commercial giant to crash into the ground and the resulting global economic crisis has hit domestic and foreign capital markets.As a result,capital markets in various countries have shifted their focus from external corporate governance to internal control.Corporate governance,internal audit,internal control and especially internal control deficiencies have become research hotspots and have been pushed to the forefront of reform in the form of laws and regulations.Based on the close relationship between corporate governance,internal audit quality and internal control deficiencies,this dissertation,at reference of worldwide empirical research experiences,combines the theory of fiduciary responsibility,transaction cost theory and incomplete contract theory from the perspective of corporate governance.This dissertation systematically studied and analyzed the deep influence mechanism between corporate governance,internal audit quality and internal control defects in terms of internal audit quality and internal control defects.Firstly,this dissertation theoretically analyzed the interaction between corporate governance and internal audit quality on internal control deficiencies and clarified that corporate governance and internal audit quality are important factors affecting internal control deficiencies.Secondly,based on the above theoretical analysis,the empirical research method was used to verify the impact of corporate governance on internal control defects.The relationship between corporate governance and internal control defects was taken as the first level and the relationship between internal audit quality and internal control defects was taken as the second level.The empirical model is used to find out the implementation path of internal control defects affecting corporate governance and internal audit quality.Finally,based on theoretical analysis and empirical test,the targeted policy recommendations were proposed focusing on how to further ensure the role of corporate governance and require listed companies to pay attention to the internal audit system and to improve the quality of internal control in essence.On the basis of this,it puts forward effective suggestions for improving corporate governance and improving the quality of internal control.The conclusions of this dissertation specifically include the following: a.Internal control and corporate governance,internal audit are cross-concepts and there are complex interactions and influences between them.Corporate governance requires internal control to achieve governance goals while internal control requires corporate governance to ensure control effectiveness.Corporate governance is based on internal auditing while internal auditing also requires addressing corporate governance issues.Internal auditing is within internal control but also independent on internal control.They have interactions and take effect on each other.b.Based on the requirements of the analysis of internal control defects,this dissertation tentatively proposed quantitative standards and methods for evaluating internal audit quality.This dissertation applied the method of valuation quantification combined with the company's official website and other media disclosures through manual collection of listed company annual reports,corporate governance special activities report or the annual report disclosed in the website of the Shenzhen Stock Exchange and the Shanghai Stock Exchange(mainly the corporate governance section),Internal control self-evaluation report and normative implementation plan,internal audit system,board resolutions and other reports and other public information to assigned values of the internal audit quality of the sub-indicators.c.Based on three economic theories including the theory of fiduciary responsibility,transaction cost theory and incomplete contract theory,this dissertation examines the characteristics of corporate governance and internal audit quality and the impact on internal control deficiencies by taking the listing of China's A-share main board in 2011-2017.The interaction mechanism and theoretical framework of corporate governance and internal audit quality on internal control deficiencies were analyzed.The specific conclusions are as follows:(1)The high quality corporate governance of listed companies can significantly correct internal control deficiencies.The lower the corporate governance capability,the more internal control deficiencies;on the contrary,the higher the corporate governance capability of listed companies,the more aggressive and significant the correction of internal control deficiencies.Specifically,the greater the power of executives and the higher the quality of external audits,the more defects in internal control of the company;listed companies can take the proportion of independent directors,increase incentives for directors,increase executives monetary compensation,and exercise equity in executives.Incentives and other measures reduce internal control deficiencies.Director incentives can significantly mitigate the types of internal control deficiencies.The introduction of rigorous external audits has a positive and significant impact on the promotion of the repair of internal control deficiencies.(2)The high quality of internal audit of listed companies can effectively correct internal control deficiencies.The lower the internal audit quality,the more internal control deficiencies;on the contrary,the higher the audit quality,the more effective the correction of internal control deficiencies.Specifically,the internal audit organization status,the scope of internal audit responsibility,the scope of internal audit and internal audit competency has different effects on internal control defect governance.The scope and scale of internal audit can effectively manage internal control defects,but not effectively reduce the severity of internal control deficiencies and promote the repair of internal control deficiencies.(3)High-level corporate governance of listed companies can adjust the impact of internal audit quality on internal control deficiencies.By analyzing the impact of different dimensions of corporate governance and internal audit quality on internal control deficiencies,it is concluded that the improvement of corporate governance ability significantly promotes the correction of internal audit quality to internal control deficiencies and there is a complementary effect.The improvement of corporate governance capabilities has significantly inhibited the improvement of internal audit quality on internal control defects and there is a substitution effect.The improvement of external audit quality significantly promotes the improvement of internal audit quality on internal control defects and there is a complementary effect.In the policy recommendations section,the dissertation puts forward some suggestions from the aspects of corporate governance,internal audit and internal control.In the end,it makes conclusions and forecasts future research.The ultimate goal of this dissertation is to provide useful reference to improve the internal control level for listed companies in China.