A Study On Internal Control Quality And Audit Opinions

The board of directors establish internal control system to reduce the agent cost, improve the efficiency and effect of management, ensure compliance with laws and regulations based on considerations of shareholders, thus to protect the interests of the shareholders. If CPA can correctly observe high quality internal control system, they may make the conclusion that this company have higher quality of earnings management, so the audit risks will reduce, thus affect the final decision of the audit opinions issued by CPA.Based on the background of mandatory disclosure of internal control, this thesis researches the effect of internal control quality on audit opinion using the method of multiple linear regression, logistic regression, intermediary effect inspection, taking the date of the main board listed companies from 2011-2013 in Shanghai Stock Exchange and Shenzhen Stock Exchange. Furthermore, this thesis analyses the influence of earnings management conduction effect of internal control quality and audit opinion by introducing earnings management as the intermediary variable. The audit opinion is divided into two types of unmodified opinion and modified opinion, then the modified opinion is further divided into five types of unqualified opinion, unqualified opinion with emphasis of matter, qualified opinion, qualified opinion with emphasis of matter, disclaimer opinion, diverse opinion. Research shows that the weaker the quality of internal control is, the more likely the financial reports are issued by qualified opinions and the qualified opinion is more bad; the conduction effect of earnings management on internal control quality and type of audit opinions is proved but conduction effect of earnings management on internal control quality and type of qualified opinions isn’t proved.Taking the internal control begins to enter into the stage of mandatory disclosure as background, this thesis studies the relationship of internal control quality and audit opinion, then introducing earnings management as conduct variable, analyses how internal control quality effect the audit opinion so it can complement the related literature about the factors that affect the audit opinion and explains the mechanism how internal control effect the audit opinion from a new perspective.