Ultimate Control、Internal Control And The Quality Of Accounting Information

The development of China’s capital market has been for decades. More and more companies exploit a channel of issuing bonds to raise fund. Financial reporting has become an important source of external investors’ access to information, and accounting information has become critical. So, improving the quality of accounting information will enable decision-making a success, improve the efficiency of resource allocation and thereby enhance market effectiveness. However, financial fraud incidents outbreak frequently and accounting distortion has been more serious. Improving the quality of accounting information has become a problem need to be solved to theorists and practitioners. As the primary means to assure the quality of accounting information,internal control has come gradually into authorities’ view and it develops rapidly. To establish and improve internal control has become a major trend recently. On the other hand, the equity of listed companies is relatively concentrated, and most listed companies have an ultimate controlling person. The ultimate controlling shareholders may take advantage of their information and rights to manipulate accounting information, and derive extraordinary gains from listed companies. Existence of a large number of ultimate controlling persons will be a threat to the quality of accounting information.Based on this background, this paper explores the relationship among ultimate control,internal control and the quality of accounting information.This paper firstly reviews literatures on the ultimate control, internal control, the quality of accounting information and their relationships. Secondly, we make a theoretical analysis of the relationship between ultimate control and the quality of accounting information, internal control and the quality of accounting information. Based on this, we propose our hypothesis. Then, we select Shanghai and Shenzhen A-share listed non-financial companies of 2010 and 2011 years as samples, use manipulated accruals calculated from modified Jones model and earnings response coefficients calculated from earnings-return model to measure accounting information quality, and then analyze the ultimate control’s and internal control’s impacts on the quality of accounting information. After this, according to the difference of the nature of ultimate controlling person and the ratio of ultimate control, we examine the differences in the role internal control played in the quality of accounting information between state-owned and non-state-owned company, the high level and low level ultimate control company.Followed, we carry out robust tests of the regression results of the two econometric models, and the results that obtained are consistent with empirical research findings.Finally, based on theoretical analysis and empirical research findings, we present some policy recommendations to improve the quality of accounting information.The innovation of this paper lies in tracing back to the ultimate controller of listed companies, connecting the ultimate control with internal control, and studying the role of internal control played in the quality of accounting information when the both exist. In terms of the ultimate control, this paper explores the relationship of the ultimate control with the quality of accounting information from the angles of the ratio and nature of the ultimate control. In the respect of internal control, this paper uses internal control index disclosed by Dibo Enterprise Risk Management Ltd to measure the level of internal control, and looks for the relevance between internal control and the quality of accounting information. This measure method avoids one-sidedness brought by a single indicator. Based on this, this paper groups the samples depending on the nature and ratio of the ultimate control, and studies whether it will affect the role internal control played in the quality of accounting information when the nature and ratio of the ultimate control differs.