A Comparative Research On Internal Control Deficiencies Identified Standard And Internal Control Audit Opinion Based On The Market Reaction

With the market competition becoming more seriously, the listed companies haveto face more economic dilemma, financial pressure and operation risk. The internalcontrol, as a useful tool to decreasing the risk, is put on an important position again.In China, The Ministry of Finance, the Securities Regulatory Commission, theNational Audit Office, the Banking Regulatory Commission and the InsuranceRegulatory Commission made a significant effect to publish the act of internal controlbasic regulation. In2011, the Securities Regulatory Commission signed a documentthat requested the listed company should disclosure the internal control informationfor regulation, the auditors should audit the internal control objectively and report theaudit opinion. At the same time, the listed company is also requested to disclosure theinternal control self-evaluation report. Since then, we enter a new age that the age ofthe voluntary disclosure information of the internal control changes to the mandatorydisclosure information.Disclosure of internal control over financial information, we require listedcompanies to enhance the effectiveness of internal control,only one of the68disclosure reports of the listed company’s internal control information, was issued bythe internal control negative opinions of audit report with a significant defect. But itdoes not mean that the internal control construction of listed companies have alreadyreached a high level.Therefore, the company and the auditor should focus the energyand the attention on how to find the material weakness and to estimate the severity ofthe weakness.We find the study of the internal control deficiencies article mainly focused onthe internal control system or internal control information disclosure. The articlefocusing on the identification, analysis and evaluation of internal control deficienciesis relatively small, and the standards of the article relating to internal controldeficiencies are more even rare. Through literature searching and theoretical studieson the internal control weaknesses identified standards, based on the theoretical basis,combining with the68mandatory disclosures of internal control audit reports andself-evaluation report internal control, we identify the status and causes of the internalcontrol weakness. Basing on the theoretical research and empirical assumptions, we propose theinternal control weaknesses identified standard system creatively. With the internalcontrol COSO report IC-IF as the basis, from the macro level and micro level of theinternal control deficiencies classification, we use qualitative and quantitative way onevaluating the internal control deficiencies, finally identify the severity of the internalcontrol deficiencies by the appropriate standards of internal control deficiencies.Through empirical research, we found the following conclusion: Internal controlweaknesses with the market reaction does not exist significantly correlated, but theinternal control self-evaluate quality of reporting and market response-related, internalcontrol audit opinion and market reaction significantly with related, internal controldeficiencies identified standards can significantly with the impact of internal controlaudit opinion. It can clearly be seen that internal control deficiencies identifiedstandards can be able to produce market effects throughout internal control auditopinion. Establishing a sound internal control deficiencies identified standards is infavor of the standard unqualified audit opinions issued, and mainly influence theinvestor’s decisions.The end of this article, we point some policy recommendations related to internalcontrol deficiencies. The listed companies should establish an internal controldeficiencies identified standard system, identify and correct internal controldeficiencies to ensure the effectiveness of the design and operation of internal control.The regulatory authorities should promote the internal control process of themandatory information disclosures, and the range of the mandatory internal controlinformation disclosure should extend to each listed company as soon as possible. Atthe same time, the information users should have a reasonable view of the internalcontrol weaknesses in information disclosure, finally make rational investmentdecisions.