The Influence Of Internal Control On Assets Impairment And Earnings Management

The impairment of asset is an important method of company earnings management. We find impairment of assets in many listed companies in recent years. Using asset impairment for earnings management of listed companies, mainly through the following two aspects:From the external view, strengthen the supervision of the government level, make more accord with China’s national conditions of asset impairment criteria; From the internal view, establish scientific and reasonable system of internal control, enterprise internal risk control, make sure safety and reliability of financial statements for the assets. The new accounting standards of 2006 promulgated by the ministry of finance to inhibit the use of asset impairment loss of earnings management of listed companies, listed companies with the development of the market economy are also set up internal control system, at the same time, the enterprise internal control audit guidelines for CPA disclosed that in the audit report has been found that the major defects existing in the internal control. In this background, this article from the perspective of internal control, study the internal control as enterprise’s own risk control mechanism, discuss its surplus management of asset impairment and the relationship between affect, which discuss the different methods of manipulate profit between the listed companies with internal control defects and those which don’t.Based on 2792 observations of 2011-2013 as the whole sample, the research of the relationship between earnings management and asset impairment, and according to the quality of the internal control of listed companies, further to make 954 samples of internal control defects and 1838 in which there is no internal control defects sample as matching samples, study the internal control the quality of asset impairment and the influence of the relationship between earnings management. The study found that compared with the long-term assets impairment, listed companies prefer to use provision for short-term assets impairment to mange earnings, and internal control defects affect the relationship between asset impairment and earnings management. We can see that the provision for bad debts impairment of fixed assets and earnings management is significantly related if there is no internal control defects of the listed companies while the inventory provision, provision for bad debt and impairment of fixed assets and earnings management has a significant positive correlation when there is some internal control defects in the listed company.Due to resource constraints, there will be some limitation in this paper, if only to select the specific impairment provision as accrued items, they can’t represent all have surplus management related projects, the result of empirical test can’t completely reflect the assets impairment provision to the effect of earnings management;This article only choose modified Jones model to measure the steerability accrued profits, may not be reflect the degree of earnings management sample companies completely and accurately.