Internal Control And Eorporate Fraud

The issue of the Sarbanes-Oxley Act draws the company’s internal control into people’s attention. After this, subjects related to company’s internal control are always the hot spot in the academic world. In our country, the Ministry of Finance, along with the China Securities Regulatory Commission(CSRC), the Audit Commission, the China Banking Regulatory Commission(CBRC), and the China Insurance Regulatory Commission(CIRC), gradually enacted "Basic standard for enterprise internal control" and "Supporting guidelines for enterprise internal control", which represents the formation of our country’s internal control system and also creates opportunities for intensive study on company’s internal control, especially for positive research. Looking back on the history of the issue of the Sarbanes-Oxley Act, the policymakers intend to restrain corporate fraud on emphasizing and intensifying the public firm’s internal control. From this point, also considering the increasing trend of the disclosure of public firms’illegal and fraud events in China, this paper will study on the relationship between internal control and corporate fraud.At first, this thesis reviews and comments on the representative study on company’s internal control and corporate fraud from different perspective, and then grasp the development sequence of each study, laying the foundation of the upcoming theory analysis. Next, based on the conclusion of the original studies, this thesis, from the theory of fraud triangle and the theory of internal control, realized the connection between the company’s internal control and the prevention mechanism of corporate fraud, that is, it theoretically verifies that internal control can act as the prevention mechanism of corporate fraud and restrain the corporate fraud. Therefore, this thesis proposes two empirical test and research hypothesis. Through choosing the proxy variables and constructing the empirical test model, this thesis verifies the research hypothesis using data from2010-2012Shanghai and Shenzhen A shares. After seriously analyzing the result, this thesis reaches its final conclusion, that is, comparing with theoretical expectation, in practice, the connection between internal control and prevention mechanism of corporate fraud in China has deviations.This thesis not only extends the study in the economic consequence category on company’s internal control, but also enriches the study in the implementation effect evaluation of company’s internal control from new angles. Particularly, the old studies about economic consequence of internal control mainly devote on the influence of internal control on company’s economic, management behavior (earnings management, value creation, inefficient investment, quality of financial reporting and so on). In these studies, the evaluation on the quality of company’s internal control and on one company’s aspect is difficult to be totally independent, which means that behavior evaluation probably have already been contained in the process of internal control evaluation. However, this thesis used company’s post-violation data to judge company’s fraud behavior, and eliminated the sample of current violation and fraud in current term, aiming at making the true internal control evaluation and company’s economic and management behavior evaluation mutually independent, reducing the effect of endogeneity.