A Study On The Relationship Between Internal Control Quality And Real Earnings Management

The separation of company's ownership and management rights leads to the problem of principal-agent.The inconsistency of the goal between owners and managers and the asymmetric information trigger the agency conflicts.In order to protect its own interests,the company's management uses its control and information superiority.They often choose different methods of earnings management to gloss over the financial statements,which seriously impairing the quality of accounting information and also impairing the rights and interests of shareholders and other stakeholders.Earnings management has always been one of the hot issues in the accounting field.In recent years,with the improvement of investor's rights protection,the improvement of the legal system and the continuous strengthening of the supervision of the securities market,the means of earnings management of listed companies have been constantly upgraded.Nowdays,the gradual transition of accruals of accruals to the earning management of real projects becomes more and more concealed,which increases the difficulty of auditing agencies.It is impossible to guarantee the quality of financial information merely by relying on the voluntary implementation of internal control system and the compulsory financial auditing.Internal control is the core component of corporate governance.A sound internal control system helps to improve the operating efficiency of enterprises,prevent all kinds of earnings management behaviors and improve the quality of accounting information.In order to establish a fair and equitable capital market system,the five ministries and commissions such as the Ministry of Finance have promulgated the ?Enterprise Internal Control Basic Norms and the Guidelines for Supporting Internal Control?,which indicate that the standard system for internal control of enterprises in China has been basically completed.Since 2011,the requirement for companies simultaneously listed in the domestic market and overseas to enforce audits of internal control and disclose audit reports on internal control.In 2012,such regulations are further expanded to be listed on the domestic main board,which will surely have a major impact on enhancing the quality of internal control and standardizing earnings management behavior.In order to further explore the inhibitory effect of the internal control effectiveness on the real earnings management behavior,this thesis systematically reviews the domestic and international internal control and earnings management research literature from the perspective of the real activity of earnings management,discusses the concept of internal control,development history and the concept of earnings management,influencing factors,classification and measurement methods,explained the key path of the impact of internal control quality on corporate earnings management,built a game analysis model,through the analysis of game model equilibrium solution,the relationship between internal control quality and earnings management conducted a theoretical analysis.Based on the theoretical analysis,this thesis empirically tests the relationship between the quality of internal control and the real earnings management.Based on the data of A-share non-financial listed companies in China during 2012-2016,we choose the type of audit opinion of internal control audit and financial report audit.The defects of the internal control of the company reflect the quality of the internal control of the company.Choosing the common means of the three kinds of real earnings management such as abnormal operating cash flow,manipulative production cost and discretionary cost to reflect the true earnings management of the company,and eliminating endogeneity problems based on PSM Effect,and making robustness test by treatment effect model.The empirical results show that there is a significant positive correlation between the internal control defects and the real earnings management.The deficiencies of the internal control have more earnings management and the accounting information is less authentic.Effective internal control can restrain the company's real earnings management,especially in the aspect of manipulative production costs earnings management.