Research On The Relationship Between Mandatory Audit Of Internal Control And Earnings Quality

Guidelines of Enterprise Internal Control published in 2010, which determined that companies listed inside and outside shall hire an accounting firm to audit financial report on the effectiveness of the internal control from January 1, 2011. It has opened the prologue of mandatory audit on internal control. Notice of implementation of enterprise internal control normative system in batch on the main board listed companies released in 2012, advancing the mandatory audit of internal control. Based on the background, the paper is to examine the effects of initial implementation of the mandatory internal control audit, the influence of the continuous execution, relative to the voluntary internal control audit whether can bring more benefits or not and whether can improve the quality of earnings or not.The paper firstly combed the related literature at home and abroad, summarizes the existing research results, and explores the space of study. Then the auditor defines the mandatory audit of internal control and the concept of earnings quality respectively. Based on the theory of regulation economics and synergies, the paper analyzes the relationship between mandatory audit of internal control and earnings quality from the multiple perspectives. In order to gain more comprehensive and detailed empirical data, the author transversely compares mandatory audit of internal control with voluntary internal control audit to find out the difference of the company’s earnings quality. And the longitudinal comparison before and after the same mandatory internal control audit of listed companies show the difference of earnings quality, and continuously implement company relative to the implementation of company for the first time. The author put forward the research hypothesis, using the main board listed companies from 2011 to 2013 as the initial sample, with earnings quality estimated by section revised Jones model and dummy variable metric mandatory internal control audit, selecting the appropriate index as the control variable, to build up multiple linear regression model. The regression analysis results are obtained by the methods of descriptive statistical analysis, two-independent sample t test, correlation analysis and multiple linear regression analysis. In the end, the author surmises the following conclusion: firstly, the mandatory internal control audit relative to the voluntary internal control audit can inhibit the company’s earnings management activities; secondly, even if it’s the first time to perform mandatory internal control audit, can cause companies’ earnings quality significantly improved. Continuously implement mandatory internal control audit relative to the first implementation of internal control audit still can inhibit earnings management activities.The paper provides empirical evidence on the economic effect of the mandatory audit of internal control which answers the applicability and superiority of the mandatory audit of internal control in our country. It has important policy meanings.