Research On The Effectiveness Of Internal Control And Financial Reporting Fraud

In recent years, listed companies are becoming increasingly important in the global economic development. However, we cannot ignore the serious damage brought by the financial reporting fraud of listed companies to their stakeholders and social-economic conditions at the same time. Although lots of domestic and foreign scholars have many research related to the financial reporting fraud of listed companies annually, the number of literature is relatively less from the perspective of internal control. And internal control is an important one of many factors which lead to the occurrence of fraudulent financial reporting. Therefore, this article aims at researching the correlations between internal control and financial reporting fraud behavior based on the effectiveness of internal control.In the article, the literature research done by scholars on internal control and financial reporting fraud and the relationship between them has been sorted and summarized firstly. And then, from the research perspective of correlations, the author analyze the basic theories of financial reporting fraud and the effectiveness of internal control respectively, and elaborate and summarize the correlation between the two theories, mainly including the influence mechanism of the internal control on financial reporting fraud and the role in preventing financial reporting fraud played by internal control. Based on these, an hypothesis is proposed that there is a significant negative correlation between the effectiveness of internal control and financial reporting fraud. In order to reduce the subjectivity and limitations in designing the internal control evaluation index voluntarily, the author select internal control index of Chinese listed companies released by Dibo Company in Shenzhen as the measure standard of internal control effectiveness. According to the generalization and summarization of literature research on financial fraud, some high-frequency using financial condition evaluation indexes have been screened to be a control variable in the model of this article. In consideration of year lag on the happen and discover of financial reporting fraud and the number of financial reporting fraud samples, the fraud companies’ data of fraud year 2009-2011 is chosen in this paper, and select the same amount paired samples of undiscovered financial reporting fraud in addition to be compared and analyzed. Through making descriptive statistical analysis, correlation analysis and regression analysis with SPSS software, the study carries out tests and demonstrations on the model established by using Logistic regression method. The empirical results show that there is indeed a significant negative correlation between the effectiveness of internal control and financial reporting fraud, which is matched with the hypothesis in the article. Finally, the progress and results of the research are generalized and summarized, and some suggestions about perfecting internal control system construction of listed companied, improving internal control effectiveness and preventing financial reporting fraud are proposed. And there are still deficiencies described at the last of this article.