The Effects Of Independence Of Internal Audit On Quality Of Earning

At the beginning of the new century, the financial scandals of many large companies in United States severely cracked public’s confidence on quality of financial statement; including the four major accounting firms, including also trapped in the external audit The role of corporate fraud prevention been questioned. The internal audit in a number of financial fraud cases, the correction of the play function of a variety of measures, causing the academia, practitioners and policy-making bodies concerned, the construction of the internal audit has been elevated to a high degree of corporate governance, known as one of the four cornerstones of corporate governance. Modern business organization, management, hierarchy, and the increasing complexity of existence, making the external monitor often only play a role in post-supervision, can not effectively find corporate fraud in advance. The internal audit are in the enterprise in the information access and timeliness of monitoring has a unique advantage, the internal audit was able to effectively improve the enterprise’s internal control system, and improving the risk management level, which will promote the fundamental effect of corporate governance to improve and reduce the company’s financial fraud space. The company’s financial fraud often involves the company’s accounting earnings information. Earnings of all accounting information in one of the most important information, both as managers of enterprises were an important aspect of assessment is an important financial indicators of company stock, such as price-earnings ratio, return on net assets calculation of financial ratios base, and internal audit can effectively enhance the company’s earnings quality. Therefore, China also attaches great importance to the construction of the internal audit into the new century, our internal audit work has been greatly developed, the supreme audit institutions of the Audit Commission issued an "internal audit provision" has the internal auditing standards shape, "the internal audit staff competence framework" of significant progress, the emergence of these norms and regulations, internal audit work indicates that China has been fairly standard. But up to now the internal audit practitioners on the effectiveness in improving corporate governance improve the quality of the role of the financial information is not very clear understanding; academic study of internal audit is often limited to the normative discourse and some simple empirical tests, but also no internal audit of the various factors in-depth and meticulous research. For example, with the independence of internal audit-a far-reaching impact on the factors of internal audit-to the lack of adequate research, known as the independence of the audit of the soul. This is regardless of the social audit, government audit or internal audit are equally applicable. However, since most of the internal audit work by the company to complete the internal audit staff, the internal audit staff wages and benefits, personnel relationships, etc. should be promoted and the inevitable occurrence of all contacts with the company, so no internal audit may be like a social audit or as completely independent of government auditing exist outside the company, the independence of internal audit has a special meaning and impact factors.This study is primarily aimed at the independence of internal audit quality on earnings. In order to achieve the purpose of the study, this paper at home and abroad on the internal audit independence and the relationship between earnings quality and what factors will affect the implementation of effective internal audit conducted a review and comment; On this basis, at the theoretical level of the internal audit and its independence, earnings quality, audit quality and independence of the impact of earnings analysis and elaboration, empirical results also come after the conclusion of this article:Internal audit independence and quality of the company’s earnings are related.This article is divided into six chapters, the specific content of each chapter are as follows:The first chapter is an introduction. This chapter begins by introducing a number of fraud cases the company introduced the research background; then is the significance of this study do introduced; Finally, the structure and methods of this study.The second chapter is literature review section. This is some of the major review of internal audit independence at home and abroad, and their quality of accounting information on the role of earnings quality and the more influential literature, combing through the literature and summary to the author of the current academic research in this area With the general understanding, for their own research pointed out the direction the next.Literature review of some key internal audit that reviewed the independence of the accounting information quality and earnings quality of the literature. Meanwhile, the Ministry of Audit can play this role and its effect on the implementation of its own, what factors would effect the implementation of internal audit have an impact is a critical issue. Therefore, this literature in this area of sorting out to do a simple review through literature review. Through this part of the literature review, we can see that compared with foreign and domestic research on the internal audit lags behind, mostly limited to the description of overall sample size is small, the results also slightly rough. From the research method, the domestic and international studies on the internal audit more use of a standardized research methods, which is difficult to internal audit publicly available data on, which makes some of the internal audit or by issuing questionnaires interviews to obtain relevant data. From the research point of view, domestic and international research on the internal audit involves two aspects:one is the effect of the factors that the implementation of internal audit, the other is after the implementation of internal audit results. The previous literature has shown that internal audit will help improve earnings quality, and enhance the credibility of financial statements, while the literature points out that the independence of internal audit to ensure normal internal audit work is very important. However, the independence of internal audit at home and abroad about the direct impact on the earnings quality is also very little empirical literature, which for this study in this area provides an opportunity. The Shanghai Stock Exchange and Shenzhen Stock Exchange issued the "Guidelines for Internal Control of Listed Companies" in 2006, respectively, implemented in 2007, the Commission has strengthened the management structure, corporate governance, internal control systems market has been strengthened, the internal Disclosure of audit information is gradually increasing, which in turn provides for the opportunity to study this article. The third part is the theoretical analysis. This section describes the first international definition of internal audit independence, analysis of the impact factors of internal audit independence; then is the definition of earnings quality, earnings quality requirements of, factors and other aspects of analysis; Finally, the World through internal audit and internal audit of the South comparison of two different examples, analyzes the independence of internal audit and internal audit in improving earnings quality, the authenticity of the financial statements to improve the reliability of the role. Through this part of the theoretical analysis, empirical regression for the following basis. And put forward this hypothesis:the independence of internal audit with the company’s earnings quality is related.The fourth part is the design part of the evidence. This chapter includes the proposed research hypotheses, study variables and model selection, sample selection and data processing. The main assumption is that the independence of internal audit has a higher company, its earnings quality is relatively high. This article uses a cross-section modified Jones model estimates the earnings management index-manipulation of accruals to measure earnings quality, internal audit independence (through the assignment to the dummy variables) as explanatory variables, during the handover, if not Some will have an impact on the dependent variable to control the factors that are likely to lead to the regression results error. This article is selected company size, debt ratio, return on net assets, the company’s growth capacity, the largest shareholder situation, the company’s audit of the accounting firm and the company’s losses last year as control variables. This paper selects Shanghai A-share listed in 2007-2009 as the research object, and the data required a certain amount of consolidation and screening processing.The fifth part is this part of the regression results. This chapter first sub-section of the annual sub-industry to use modified Jones model to calculate the indicator of earnings quality can be measured, then these indicators as explanatory variables, defined above, the internal audit agency under the conditions for the explanatory variables, the other earnings quality may have impact indicators as control variables; using SPSS statistical software panel regression analysis. Regression results are consistent with the hypothesis of this article. Part VI of the results of this study summarized the conclusions drawn in this paper. Based on the current existence of the internal audit field problems, put forward their own proposals.The possible contribution of this paper is:(1)This internal audit independence and earnings quality to study the two issues together, with the empirical results show that the independence of internal audit in improving earnings quality has a certain role. From the existing research results, corporate governance, internal inhibition of earnings manipulation, thereby increasing the role of earnings quality has been more positive people. The elements of corporate governance, internal audit as a basic theme, although a large number of corporate governance model has been applied, very few studies have directly investigated the independence of internal audit the impact on earnings quality, research on this issue before the majority are from A simple theoretical elaboration and analysis, this type of literature is more a lack of evidence. Results of this study this study provides important empirical evidence.(2) The construction of this internal audit to strengthen and improve the independence of internal audit provides an important basis. This study shows that companies with higher internal audit independence, more inhibition of the extent of earnings management, thereby enhancing the company’s earnings quality. This conclusion can build for the future of corporate governance to provide a new direction. Corporate governance layer may consider using to improve earnings quality internal audit; regulators and policy-making bodies, listed companies can also strengthen the internal audit system construction to proceed, to improve corporate governance effects.