Research On The Substitution Effect Of Internal Control And External Audit On The Inhibition Of Earnings Management

In recent years,domestic and foreign fraud cases emerge in an endless stream,including the 2001 Enron Corporation,the 2007 financial crisis in the fake enterprises,including a number of foreign companies and Lantian shares,Sanlu milk powder and many other domestic companies because of financial Fraud suffered a serious economic and loss of credibility.In order to improve the quality of accounting information and reduce the degree of earnings management,China has joined in the revision of the internal control,the "internal control guidelines" and other relevant provisions' appearance have gradually made internal control begin to improve.As a result,as an important internal governance mechanism of the company-internal control in China has begun to receive attention.External auditor as a third party independent regulator and internal control played the same role in the suppression of earnings management.Investors will focus on the quality of the audit report issued by auditors,if it is complete and reliable and can check the accounting fraud and earnings management.This article embarks from the principal-agent theory,asymmetric information theory,and connects with the contract theory of earnings management.It puts forward that the internal control and external auditing have inhibitory effect on accouting choice earnings management and real reality earnings management.Then we choose the manufacturing listed companies in 2012-2014 as samples for empirical research,we use the modified section Jones model in the empirical study.The empirical results show that the internal control and external audit not only have inhibitory effect on earnings management alone,and the joint inhibitory effect on earnings management will have a substitution effect.Finally,this article puts forward the corresponding suggestions from the internal control,external auditing,external supervision of listed company.