The Empirical Research About The Restraint Of Internal Control On Earnings Management Based On The Listed Companies On GEM

With the increasing development of international economy, it has become a common phenomenon that listed enterprises manipulate financial data by exploiting earnings management, which draws attention from stakeholders. Abusive earnings management may lead to false financial situations, impact rational allocation of resources and interrupt the regular growth order of bonds market. The targets of internal control are as follows: to ensure the reliability of the financial report; to guarantee the efficiency of management; and to observe relevant regulations and laws. Therefore, the relationship between internal control and earnings management remains a heated topic within the accounting circle. Compared with main board, growth enterprise market(GEM) is a bit younger and the rapid development of GEM listed companies goes hand in hand with emerging problems, some of which occur due to lack of comprehensive and effective internal control system. This paper aims to analyze the relevance among the quality of internal control, accrual earnings management and real earning management and provide some policy suggestion on a basis of the previous studies from the perspective of GEM listed companies.Based on the annual reports from 2011 to 2013 of 153 GEM listed companies, 130 companies are chosen to be used as sample in repression analysis. Modified Cross Selectional Jones Model and accounting conservatism are taken into consideration in order to construct model to calculate accrual earnings management and the accrual margin rate as explained variable; the model put forward by Roychowdhury is used to calculate real earnings management and the operative cash flow, cost of manufacture and other expenses are used as explained variables too; the method of internal control of used to measure the quality of internal control of the listed companies, which means a comprehensive analysis of the internal control report, the assessment report from the sample enterprises as well as the certificate whether the enterprise receive any punishment from China Securities Regulatory Commission in 2013 to evaluate their internal control quality; other factors relevant to management structure are also included to be used as control variables. Based on the analysis of SPSS method, the results indicate that high quality internal control may restrain the earnings management but can not restrain the real earning management of these companies. Relevant suggestions are proposed in this paper to promote the internal structure, optimize the management structure and enhance the internal control and external supervision, all these will restrain the earnings management and promote the GEM grow healthily and orderly.