"Management's Discussion And Analysis" Disclosure Quality And Internal Control Weaknesses

The risk of corporate bankruptcy and financial fraud are usually closely related to the weakness of internal control.To this end,the United States set up Treadway Committee to analyze the causes of financial fraud and propose solutions and established the Committee of Sponsoring Organizations of the Treadway Commission(COSO)to focus on internal control issues.China has also stepped up the construction of internal controls after the financial frauds such as Yinguangxia,and since June 2008,the Ministry of Finance of the People's Republic of China and other five ministries and commissions have jointly promulgated the “Basic Norms for Internal Control of Enterprises” and their supporting guidelines.The introduction of China's internal control standard system has made China's internal control and its defect disclosure into a more scientific and standardized new stage.“Management Discussion & Analysis”(MD&A)is an important part of the annual report of a listed company.It can provide non-financial information that cannot be reflected in traditional financial statements and,to a certain extent,makes up for the inherent defects of traditional accounting statements.Therefore,domestic and foreign scholars generally believe that MD&A is a valuable part of information disclosure in listed companies.MD&A is prepared by the company's management team.It further explains and analyzes the company's operating results for the current period,and explains the company's future business plans,as well as the opportunities and risks faced by the company.It helps investors understand the current status of business management and the future of the company,which can help investors to make reasonable investment decisions.MD&A information can directly or indirectly reflect the current status and future development trend of the company's operation and management.This paper uses the quality of MD&A information disclosure as a signal to verify the relevance of MD&A information disclosure quality and internal control weaknesses.Studying the signal transmission function of MD&A information disclosure quality to internal control weaknesses plays a key role in safeguarding investor interests,improving corporate governance,and strengthening market supervision.This paper can be divided into two parts as a whole-the theoretical analysis and the empirical test.First,the paper sorts out the literature on MD & A.After that,it defines the weaknesses of MD & A,internal control and internal control,and then elaborates the classical economics theory,puts forward three research hypotheses in this paper.In the part of empirical test,we choose the quality of information disclosure of MD & A as the explanatory variable.Taking the listed companies of Shenzhen Stock Exchange in 2015 as the research object and the internal control weaknesses as the explanatory variables,we use the binary logistic regression model to examine the overall information disclosure quality of MD & A The relationship between the weaknesses of internal control has expanded the research scope of the quality and usefulness of information disclosure of MD & A and the weaknesses of internal control.The empirical results show that the higher the quality of MD & A information disclosure,the less likely it is to have internal control flaws,and the long-term strategic information disclosure quality of MD & A signals a stronger internal control flaw than shortterm operational information.The contributions of this dissertation to related theories are as follows: Firstly,the paper takes the GEM of Shenzhen Stock Exchange as a sample to study the signal transmission of the quality of MD & A disclosure and the weaknesses of internal control,which enriches the information of MD & A disclosure,and reminds investors to pay attention to the possible internal control risks of the enterprise.Secondly,the paper divides MD & A information into short-term business information and long-term strategic information,which proves that longterm strategic information of MD & A can better convey the existence of internal control flaws in enterprises.At present,the long-term strategic information disclosure standard of MD & A is not perfect,thus providing the basis for the regulatory agencies to establish and improve the mechanism of information disclosure of MD & A.