Effect Of The Implementation Of Mandatory Internal Control Audit

In order to strengthen our internal control system construction, promote the mandatory internal control audit implementation, Ministry of Finance promulgated the "Notice on the implementation of the internal control system of the listing Corporation in 2012 "in 2012. The documents provides that the main board listing corporation beginning implement the mandatory internal control audit. All main board listing corporation must perform mandatory disclosure of internal control system of the audit report by 2014.The purpose of this paper is to examine the effect of mandatory internal control audit, and to discuss whether the mandatory internal control audit is superior to the voluntary internal control audit in the inhibition of earnings management. This paper use methods of literature review, theoretical analysis and empirical research to find the implementation of internal control audit on the role of the listing Corporation’s accrual and real activity earnings management and find its effect of earnings management manipulation in different directions.This paper use 2012-2014 motherboard A-share listed companies as research samples for initial and use modified Jones model to calculat the accruals earnings management. Through Roychowdhury (2006) model and Zeng Fu Li (2011) research methods measure real earnings management activities, a multiple linear regression model was constructed. The results are obtained by the method of empirical analysis of large samples. Study found that first, voluntary internal control audit because of the presence of "self selection" factors, its degree of earnings management is higher than that mandatory internal control audit, the mandatory rather than voluntary internal control audit is more useful to improve the quality of earnings management; secondly, the implement of the mandatory internal control audit has obvious inhibitory effect on two ways of earnings management; third, the companies that executive mandatory internal control audit on inhibition of increasing profits (upward) to the earnings manipulation is more obvious.Enterprises always use both accrual earnings management and real earnings management to manipulate corporate earnings, but the existing empirical research on audit and earnings quality of the internal control mostly stay in analysis of the one way earnings management, and there is no in-depth study of the internal control system audit role of different direction of earnings management. In this paper, we consider two kinds of earnings management methods, which are the accrual and the real management, add the research on the effect of earnings management in different directions, and this research on earnings management is more comprehensive.