An Empirical Study On Effectiveness Of Internal Control

With the frequent financial frauds taken place, regulatory authorities and thepublic have attached great importance to the effectiveness of internal control and itsrelevant information disclosure. As a result, the construction of internal controlsystem and relative regulations has witnessed rapid development. An immensetransition from voluntary disclosure to compulsory disclosure is ongoing. In thiscontext, it is of political and practical significance to conduct empirical study on thechanging process of internal control.Aimed at analyzing the correlation between effectiveness and objectives’achievement of internal control, this thesis studies the samples collected from thefirst two years after the new regulations’ introduction, and the results show:(1) Theeffectiveness of internal control has positive impact on corporate performance. Withproper supervisory mechanism under internal control framework in effect, bothresource configuration and business performance will be improved.(2) Theeffectiveness of internal control has positive impact on the quality of financial report.With full implementation of internal control system, earning management orfinancial fraud can be prevented during the generation and disclosure of accountinginformation, so an authentic and prompt report is assured.(3) The effectiveness ofinternal control has positive impact on the lowering probability of corporate policyviolation.(4) After the introduction of compulsory disclosure of internal controlinformation, the quality of financial report improved and the number of corporatepolicy violation decreased, but corporate performance is slightly worse than that ofvoluntary disclosure period.Based on the thesis findings, it is suggested:(1) Corporations should lay moreemphasis on the construction of internal control system, and guarantee its effectiveimplementation.(2) Regulatory authorities should reinforce the supervision ofwhether the corporations abide by the new regulations and how they conduct it.(3)Investors should rely more on the internal control information when judging thecorporations’investment value.