An Empirical Study On The Factors Related To Disclosure Of Internal Control Deficiencies In Limited Companies

An Empirical Study on The Factors Related to Disclosure of Internal Control Deficiencies in Limited CompaniesIn recent years, business failures or financial fraud cases came out one after another in domestic and abroad due to lack of sound internal control system and risk control mechanisms. Enron, WorldCom, Global Crossing, CAO bankruptcy and a series of large loss events both expose the failure of internal control problems or weaknesses. To rebuild the confidence of the public listed companies, capital markets around the world have issued a series of laws and regulations, raised a strict internal control requirements for listed companies, such as the U.S. "Sarbanes - Oxley Act", Japan's "Financial Instruments and Exchange Act", China " Basic Norms of Internal Control. " During Post-Financial-Crisis era under the economic, legal, social background, our country need to find out the determinants of internal control difficiency or weakness. Then the listed company can assess and prevent from internal control deficiencies according to the specific circumstances of each company, while the capital market regulators and intermediaries who will based on investor protection point of view can strictlly supervise and monitor these disclosure of internal control deficiencies in listed companies.In this paper, after considering the research results of scholars from home and abroad studying in the internal control deficiencies disclosure, the author build a conceptual model of disclosure of internal control deficiencies, and according to this, we use the internal control integrated framework"five elements"theory to explain the existence of difficiency in internal control mechanism. Meanwhile, we use signal transmission theory and external supervision theory to analyse the determinants of the disclosure of internal control deficiencies. With China Shenzhen capital market data, the author analyse the management internal control self-assessment report in 2009 to study the actual disclosure of internal control deficiencies and determinants of the disclosure. Taking Logistic regression model as an methodolgy for this empirical research, the study examed whether the chairman and general manager unit together, company business performance, company size, the scale of accounting firms, audit opinion type, dual listed can affect the disclosure of internal control deficiencies. The study result comes that: the company internal control deficiencies exist tend to be chairman and manager two-jobs-unit-one, and poor business performance, in which internal control construction and maintenance is inadequate relative; at the same time, based on its strong resource, the big-scale company compared to smaller companies are more voluntary in disclosure of internal control deficiencies; accounting firm size, audit opinion type was no significantly relate to the internal deficiency disclosure; what's more, dual-listed companies are more voluntary disclosure of internal control deficiencies because of its more stringent regulatory environment. This results offer an empirical evidence for the disclosure of internal control deficiencies system.Based on the results above, the author make out the following recommendations: China's market regulators should enforce the disclosure of internal control information of listed companies, in particular the reliability of financial reporting disclosure on internal control deficiencies, as well as based on the cost-effectiveness principle to strictly require listed companies the effectiveness of desiging and operating internal control system. Management of listed companies should regulate the disclosure of internal control self-assessment reports and improve internal control deficiencies or weaknesses on features for the company's internal control deficiencies disclosure, to further improve and refine its internal control system.