A Study Of The Impact Of Internal Control Defects On Audit Opinions

In 2006,China established the “Enterprise Internal Control Standards Committee”,the establishment of the Commission was the beginning of the establishment and development of internal control in China.Since then,China was developing and progressing its internal control system continually,and have made many achievements.The reason why China pays more attention the development of internal control system is that the internal control of the company and the country is extremely important.To be specific,on the one hand,company's internal control is more incomplete,the company will have more problems which make it can't work properly in its organizational structure,business development and so on;on the other hand,it will make poor management,bankruptcy of more and more companies,even make the entire economic market becomes unstable that more and more companies have internal control deficiencies on the market.Auditors often focus on those companies having internal control deficiencies in the audit of the financial report.In general,internal control deficiencies will hinder the company's business development seriously,that is,companies have more and more serious internal control deficiencies,the credibility of financial information provided by financial report are lower,so auditors will pay more attention to these companies,and be more likely to issue modified audit opinions.However,are there direct links between internal control deficiencies and modified audit opinions? Does every types of internal control deficiencies impact modified audit opinions? Is there a difference between the main board,SME board and GEM? This paper will analyze these issues through empirical research.This paper chooses the relevant data of internal control defects and audit opinions from 2014 to 2015 through the database of Tai'an and cninf,and according to the severity of internal control deficiencies and the new COSO framework makes an empirical study on the impact of internal control deficiencies on modified audit opinions in Shenzhen A share market.On the one hand,the results show that the internal control deficiencies of companies in Shenzhen A share market are significantly positively correlated with modified audit opinions according to the severity of internal control deficiencies,that is,the more serious the internal control deficiencies are,the more likely the companies will be issued modified audit opinions,and there is no difference between the main board,SME board and GEM;on the other hand,the results also show that risk evaluation deficiencies and supervision deficiencies in Shenzhen A share main boardt are significantly positively correlated with modified audit opinions,risk evaluation deficiencies and control activities deficiencies in SME are significantly positively correlated with modified audit opinions,risk evaluation deficiencies and information and communication deficiencies are significantly positively correlated with modified audit opinions according to the new COSO framework.At present,China's internal control system is not perfect,although there are little differences between SME,GME and main board the GEM on the disclosure of internal control deficiencies,the construction of rules and regulations of SME and GME in china is relatively lacking.The paper provides an empirical basis to help China strengthen the construction of rules and regulations of SME and GME.Besides,the paper will not only promote the internal control construction of listed companies,improve the quality of internal control,but also remind the auditors to pay more attention to the type of internal control defects and content in the audit,improve the audit work effectiveness.