Research On The Effect Of Internal Audit Quality Upon The Quality Of Financial Reporting

Since the birth of modern internal audit in the early 20th century, the United States, it has been constantly enriched and developed in 80 years time. Beginning of this century, because of Enron, WorldCom and other international occurrence of financial fraud case, the internal audit has been widely concern.Information asymmetry makes financial report becoming the main basis approach to understand the company’s operating condition, financial reporting quality is closely related to the stakeholders. In recent years, national regulators prefer internal audit, external audit,supervision and other means to ensure the authenticity of accounting information, improve the quality of the company’s financial report.Principal-agent theory consider the company as a consortium, internal audit as a third party of contract parties can form the checks and balances,supervise agent management behavior, alleviate the contradiction between the principal and agent, reduce agent human intervention in the financial report, maintain the quality of financial reporting.ⅡA regard internal audit,the board of directors, management and external audit as four basic factor of modern corporate governance structure.No.1101 basic norms of internal audit points out internal audit can promote good governance, increase value and achieve their goals. Internal audit institutions has become the development trend of corporaie governance.Many factors always effect on the quality of internal audit. To measure the overall quality of internal audit, makes internal audit institutions subordinate pattern, the disclosure of the internal audit system and scope of work with internal audit as the synthetic composite indicator of the internal audit quality. The financial reporting is flawed which occur restatement, so whether financial restatement can be qualitative to distinguish the quality of financial reporting. Use of relevant data for 2010-2012 in Shanghai and Shenzhen, and the control of financial restatements company’s internal audit quality samples to conduct regression analysis showed that there was a significant positive correlation between the quality of internal audit and financial reporting quality, that quality internal audit can suppress the occurrence of financial restatements to ensure the quality of financial reporting.Internal audit is an important part in the corporate governance structure; internal audit in the financial report have more advantages than the external audit error-detection remedy. Through theoretical analysis and empirical research can prove that internal audit play an active role to improve the quality of financial reporting issues, demonstrate the value of internal audit where to Enterprise truly recognize the internal audit function to further improve the internal audit system, and finally promote the development of the internal audit.