Internal Control, Earnings Management And Audit Quality

Internal control is the most important activities of the enterprise management, It is areasonable assurance of business performance, risk prevention and financial reportingquality, at the same time, perfection of the system of internal control tends to affect theformation of the Certified Public Accountant audit report. If certified Public Accountantcorrectly observe the internal control system of the high quality of listed companies, whichmeans that listed companies may have higher quality of earnings management, and auditrisk of the registered accounting facing will be reduced. Naturally, this will affect the finaldecision by certified public accountants audit report.In this paper, the data of the Shenzhen Stock Exchange A-share listed companies in2008-2011as a research object, internal control integrity as a measure of the quality of theinternal control variables, modified cross-sectional Jones model to calculate the accruedcontrollable accruals profits as a measure of earnings management variables, audit opiniontype as a measure of audit quality variable, the author through establish the model of therelationship of internal control, earnings management and audit quality and use logistcregression statistical methods to research. The study found: if the degree of perfection ofthe listed company’s internal control is higher (lower), the likelihood of Certified PublicAccountant finding earnings management is the lower (the higher), which shows that theinternal controls and independent external audit may exist some substitution effect. If thelisted companies have higher degree of earnings management, The failure probability ofauditors will be higher, so the listed companies will burden higher audit costs. Although inthe empirical process I didn’t find significantly related to the relationship between earningsmanagement and audit opinions, after further research to find that with the improvement ofaudit fees (to reduce), substitution effect between internal control and independent externalaudit will be weakened (strengthened).