The Influence Of Internal Control Weaknesses On The Quality Of Financial Reporting Is Analyzed:Design Weaknesses Vs Running Weaknesses

In January 26^th,2018,the China Securities Regulatory Commission?CSRC?spokesman notified the 54 typical cases investigated and dealt with in 2017 by special law enforcement action,directly referring to the financial fraud and fraud of the listed companies in China.The frequent occurrence of corporate financial reporting fraud cases around the world makes internal control become the focus of the theoretical and practical circles.Various countries have promulgated internal control laws and regulations,such as the United States promulgated the"Sarbanes act".China has promulgated the basic regulations of internal control of enterprises,which requires listed companies to issue internal issues.Control self-evaluation report and invite accounting firms to audit the effectiveness of internal control.Accordingly,the relationship between internal control defects and the quality of financial reports has become a hot topic.However,how does internal control design defects and operational defects affect the quality of financial reports is rarely seen in the literature.The purpose of this paper is to investigate the impact of different internal control deficiencies?design defects and operational defects?on the quality of financial reporting.First of all,this paper reviews and summarizes the research results of the relationship between internal control deficiencies and earnings management,financial reporting irregularities and audit opinions at home and abroad.Secondly,on the basis of literature review and theoretical analysis,combined with the characteristics of internal control design defects and running defects,this paper puts forward the research hypothesis and carries out the research design.Then,this paper empirically examines the impact of design defects and operational defects on the quality of financial reports from several aspects of the financial report earnings management,financial reporting violations and audit opinions,based on the sample of the Shanghai and Shenzhen A shares listed companies in 2007-2015.It is found that operation defects have a more substantial impact on the quality of financial reporting than design flaws.The concrete performance is that the enterprises with running defects are more likely to have earnings management and financial reporting irregularities than those with design defects,and are more likely to be issued non standard audit opinions.Further analysis shows that the existence of operating defects significantly improves the level of financial reporting earnings management of private enterprises,and has a weak influence on the level of earnings management of state-owned enterprises;the non-state-owned enterprises with running defects are more likely to have financial reporting violations and can be more able to be issued non standard audit opinions.In general,compared with state-owned enterprises,the impact of operational defects on financial reporting quality is more significant in non-state-owned enterprises.This study helps to enrich the existing internal control of the economic consequences of the literature,to help enterprises have targeted,focused on the correction of different nature of internal control defects,improve the quality of financial reporting,improve the construction of internal control of enterprises.At the same time,this article will help the relevant departments of our government to improve the identification standards of internal control defects and the detailed rules of internal control information disclosure,and help the regulatory departments to supervise the internal control construction process from the perspective of operation defects and design defects.