Empirical Study On The Property Right Nature, Audit Committee Characteristics And Internal Control Deficiencies

As an important measure to improve corporate governance in our country, the audit committee have a significant impact on public companies’ efficiency and effectiveness of the internal control. Therefore, through studying the correlations between the audit committee characteristics and internal control deficiencies, this study addresses the role of audit committee in the internal control deficiencies of public companies. In addition, because the state-owned enterprise occupies a considerable proportion in the public companies in our country, so if the ownership structure impacts the audit committee. In order to solve this problem, from the perspective of internal control deficiencies, this study studies the correlations between the audit committee characteristics under different property rights and internal control deficiencies, testing the property nature’s effect on the audit committee’s governance efficiency and effectiveness. Since 2008, as the Enterprise Internal Control Basic Norm, Enterprise Internal Control Supporting Guidance and 21 documents issued by CSRC in succession, the information disclosure of internal control proceeds into a scientific and standardized new stage, therefore it is available that we can examine the effect of audit committee on internal control deficiencies using a large sample.Based on organizing and analyzing previous documents of the audit committee and the internal control, we begin with a sample of A-share firms listed on Shanghai and Shenzhen main board. The date from the year 2012 to 2014 are all collected by hand. This paper from three indicators to measure the characteristic of the audit committee, namely, the size of the board, professionalism and independence. By using the Logit regression model to investigate the relation between audit committee characteristics of listed companies and the internal control deficiencies. We find that the independence and professionalism of the audit committee have a significantly negative correlation with the internal control deficiencies, indicating that firms are more likely to be identified with an internal control deficiencies, if their audit committees have less financial expertise and independent directors. However, the results show that the size of audit committee have a negative correlation with the internal control deficiencies, but not significant. Possibly causes are analyzed in this paper. By the nature of the property as a cross variables regression test, we find that the nature of state-owned enterprises really offset the role of the audit committee. In addition, as a further study, this paper groups firms disclosing internal control deficiencies according to the severity of the deficiencies, in order to verify the audit committee characteristics’ effect on the severity of internal control deficiencies. Finally, this paper puts forward relevant policy recommendations based on government and listed companies two angles respectively, hoping to further promote the improve the construction of China’s audit committee system and internal control systems pace.This study confirms the audit committee plays an active role in improving quality of internal control and reducing internal control deficiencies. It is conductive to the relevant regulatory authorities perfecting audit committee and internal control system related specifications, the third-party evaluating the internal control quality, and to the enterprise establishing a sound corporate governance structure and internal control, at the same time enriching the relevant theoretical research.In summary, the contribution of this study is as following. firstly, in this paper, under the mandatory disclosure of internal control information, the research time window is three years from 2012 to 2014, large samples to study the effect of audit committee characteristics on internal control deficiencies, enriching the research on the influence factors of internal control, as well as providing the related theoretical basis to improve the audit committee system and establish evaluation index system of internal control. Secondly, this paper explores the impact of the variable nature of the property as a quality audit committee internal control deficiencies under different ownership, providing new perspectives to the theory research of audit committee and internal control deficiencies.