Study On The Correlation Between Audit Opinions And Internal Control Quality

Financial report not only helps owners and creditors rational investmentdecisions, but also helps to reflect the entrusted management responsibilities ofbusiness managers, is an important basis for national economic managementdepartment of macro-control and management. In recent years, however, occurred athome and abroad,"Enron","Joan Minyuan","Zheng Baiwen" and "green earth" andother financial fraud incidents have a broad and serious adverse impact on thecommunity, one of the reasons is that the corporate financial reporting internal controldeficiencies and the level of internal control quality is poor. The Ministry of Financeand other five ministries jointly issued the "Guidelines for Enterprise InternalControl", which studies the development of the "Enterprise Internal Control PracticeNote14-Financial Reporting," is to guide and regulate the enterprises to strengthenfinancial reporting internal control and prevention of financial reporting risks in April2010. Although in recent years, the construction of the internal control system hasachieved initial success and experience, but compared with foreign research andpractice on internal control theories, both in breadth and depth, there are still a largegap.Numerous theoretical studies showed that the accounting report after a review ofthe independent auditor is more reliable, and therefore, opinions type of audit reportsof listed companies attach great importance to all stakeholder enterprises and can havean important impact on their decision-making behavior. In addition, the internalcontrol information over financial reporting can improve the quality of financialstatements and enhance the confidence of external users for financial statements. Thestudy of company’s internal control quality influencing the type of audit opinionsissued by auditors audit has important theoretical and practical significance.Based on the research results at home and abroad, first of all, this paper studiedthe correlation between Audit Opinions and Internal Control Quality based onasymmetric information theory and agency theory and other theories. Secondly, thebasic objectives of internal control as a guide, selects four primary indicators such aslegal compliance of management, financial reporting and related informationreliability etc, five secondary indicators such as type of violation, the audit fee rate etc,to measure the internal control quality. Again, establishing the Logistic regression model and using Shanghai and Shenzhen A-share listed companies on the Main Boardof empirical data of2010to study the correlation between Audit Opinions andInternal Control Quality of the listed companies. The results showed that:(1)Thecorrelation between non-standard Audit Opinions and Internal Control Quality isnegative. The higher the internal control quality, the smaller the probability of beingnon-standard audit opinions issued.(2)This paper further from four perspectives suchas the internal control quality mean, the listed sites, whether ST and audit fee meancomparative study group. We find that most of our listed companies have low internalcontrol quality. In the group of ICQ less than the average, the non-standard AuditOpinions and Internal Control Quality is negatively correlated. In the group of ICQgreater than the average, the correlation between non-standard Audit Opinions andInternal Control Quality is not significant. Group in the Shanghai stock market, thenon-standard Audit Opinions and Internal Control Quality is negatively correlated andin Shenzhen group, no correlation between them. In non-ST group, the non-standardAudit Opinions and Internal Control Quality is negatively correlated, but in ST group,founding no correlation between them. In the group of audit fee mean, thenon-standard Audit Opinions and Internal Control Quality is both negativelycorrelated.(3) This paper introduces the cross terms of internal control quality andaudit fee in the model, however, is found that to improve the audit fee, there is noweakening of the correlation between non-standard Audit Opinions and InternalControl Quality. Finally, according to the conclusions of this study, this paper suggeststhe policy recommendations to improve China’s listed companies audit quality andstrengthen internal control supervision.