Quality Of Internal Audit And Earnings Management

WITH the SOX and the relevant regulations of internal audit introduced internationally and domestically, the theoretical and practical experts began to realize that the internal audit plays an essential part in corporate governance. Meanwhile, earnings management of listed firm and its endless problem are reached extensively in academic accounting during the last 20 years. Both the internal audit and the earnings management deal with the accounting information, so the natural relationship between the internal audit and the earnings management draws my attention immediately. How the internal audit prevents and reduces such kind of earnings management has its application meaning.Based on the analysis of the original theory of internal auditing and earnings management, the paper uses the empirical research and the normative research methods to study deeply on how the internal audit affects the earning management, that is to say, to test and verify that the relationship of the quality of internal audit and the earnings management is negative.The paper is divided into seven parts, and each part is as follows:Part one:Introduction. This part introduces the objects, the meanings, the main contents, the main framework and the research methods of the study, so do the expected contributions.Part two:Literature review. This part reviews the international and domestic researches of the internal audit, the earnings management, and the relationship of the internal audit and the earnings management, and then made some comments on the latter.Part three:Theoretical analysis and assumption. This part firstly analyzes the original theories of the internal auditing and the earnings management, and secondly summarizes the theory of the relationship between the two. Thirdly, the author introduces the assumption:the relationship of the internal audit quality and the earnings management is negative.Part four: Measure of the quality of internal audit and the earnings management. Due to the limit of the disclosure of internal audit, the author uses the independence of the internal audit department, the disclosure of the internal audit regulations, and the size of the internal audit department to measure the quality of internal audit. As for the earnings management, the paper quotes the expansion of the Jones model and the abnormal accruals.Part five:Model and its application. This part chooses 2007-2009 308 listed companies as the sample companies, totally 390 data as sample data. And then the author sets the model.Part six:Empirical results and analysis. With the testing method of regression analysis, the comparing analysis and the multiple regression analysis, the results show that the internal auditing does limit earnings management in a certain extent.Part seven:Conclusions, limitations and future directions. This part describes the main results:the relationship of the internal audit and the earnings management is negative. And the author mentions some limitations of the study and expects some research directions for the internal audit and earnings management.