Professional Competence Of CFOs And Accounting Information Quality

The development of China's capital market has been for decades. More and more companies exploit channels of IPO or issuing bonds, to attain the necessary funds for growing. There is a strong tie between the effective functioning of capital markets and the accounting information disclosure of listed companies. The companies'accounting information is an important source for outside stakeholders; whether it is adequate or not and the quality level of it have a direct and significant impact on the decision made by outside investors. Therefore, how to improve the quality of accounting information and the information disclosure mechanism, has been an important topic in the study of modern financial accounting. According to existing evidence, the listed companies in China still have plenty of accounting information distortion. There are many possible reasons for why accounting information of listed companies can not be truthful and reliable to reflect business transaction, nevertheless, Chief Financial Officer (CFO) has a fixed obligation. This is because CFO plays a key role in the generation process of the accounting information. Based on the impact on accounting information of CFO, employing econometric models to quantify research on the relation of financial expertise of CFO and the quality of accounting information, is of great theoretical and practical significance.This article firstly summarizes the essential characteristics and measurement methods of accounting information quality, and literatures at home and abroad about the relationship between CFO and the quality of accounting information. Secondly, we discuss the reasons that the research in this paper selects financial restatements as a measure of the quality of accounting information, and then from the view of financial restatements, we get into the situation of the quality of accounting information of listed companies in China. Thirdly, based on agent theory, the article, we look more into the basic functions and advanced functions of CFO, as well as CFO's status and role in corporate governance. This analysis lays a theoretical foundation for empirical research in our article. Fourthly, we use2006-2010China A-share listed company as sample range, and test empirically the influence of CFO's education degree,professional qualification and work experience on listed companies' accounting information. Finally, depending on the conclusions of theoretical and empirical research, the paper proposes several policy recommendations about how to improve accounting information quality in China.The study finds, from the point of view of financial restatements, that the quality of accounting information of listed companies in China has remarkably improved in recent years. Throughout the past five years, the proportion of listed companies which have restatement behavior, has declined from16.34%in2006to5.33%in2010; meanwhile, from the perspective of the contents of restatements, we can see that the revise of four financial statements is less and less, but the correction of report notes and non-financial statement contents is large. Looking into empirical results, there is an inverted U-shaped relationship between CFO degree and accounting information quality:compared to CFO with a bachelor-below degree or a doctor degree, CFO who has an undergraduate or master degree can make their companies' accounting information quality higher; CFO obtaining the title of vantage or senior accountant or CPA(ACCA), will have some positive impact on the quality of accounting information, but not significantly; the longer the tenure of CFO is, the higher the quality of accounting information of listed companies is.The robustness test of this article shows, taking the management incentive compensation into account, that the conclusions of the relationship between financial expertise of CFO and the quality of accounting information we found previously still holds true. Moreover, the CPA(ACCA) variable is significant in the5%level. Then, analyzing the influence of the management incentive compensation, we see that, there is a negative correlation between the increase of CEO compensation and the quality of accounting information; and a positive correlation between the increase of CFO compensation and the quality of accounting information. This indicates that China's CFO compensation incentives are effective; however, CEO of listed companies may interfere disclosure of accounting information in order to improve their own pay levels, and CFO will be forced to adopt inappropriate accounting treatment by a higher level executive pressure.