Can Compulsory Internal Control Audit Inhibit The Company's Earnings Management?

In the 20 th century,a series of financial fraud scandals in the United States dealt a great blow to investor confidence and the public.In order to change this situation and enhance the protection of investors’ interests,the United States Congress immediately enacted the Sarbanes-Oxley Act,known as the strictest Act in History,which imposes stringent requirements on certified public accountants.The Act requires certified public accountants to audit management and corporate internal controls and issue audit reports.The implementation of the Act has effectively increased investors’ confidence in the capital markets.The construction of internal control system of listed companies in our country has also experienced a course of development from loose to strict.The enterprises listed on the main board of China are required to disclose the audit report of internal control.Therefore,the audit of internal control of listed companies on the main board of China has entered the compulsory disclosure stage from the initial voluntary disclosure stage.With the promulgation of the policy,enterprises have to disclose their financial situation and operating results to the outside world.At this time,in order to create a good management situation,the enterprises often carry on earnings management,thus whitewashing the financial statements and transmitting the positive management signal to the outside world.In this paper,three kinds of listed companies in China are taken as the research samples,and the impact on the two kinds of earnings management is studied from different implementation time of internal control audit policy.Firstly,on the basis of reading scholars’ research results,this paper studies the impact of the two kinds of earnings management policies on earnings management.It is concluded that the compulsory internal control audit policy has a positive and negative influence on the two kinds of earnings management behavior,and then it is tested by empirical method.Finally,it is concluded that the high-quality internal control system will greatly restrain the earnings management behavior of enterprises.Before and after the implementation of the policy,enterprises’ internal control reports disclose non-standard and unqualified opinions,which will lead to a decline in the accrual portion of earnings management and the establishment of the state-controlled listed companies on the main board and the listed companies on the main board.In the case of small non-state-owned main board companies,internal control audit reports disclose non-standard unqualified opinions,and the average value of real earnings management shows a downward trend and so on.The research of this paper enriches the research field of the influence of internal control audit on earnings management,and provides a new perspective for investors to evaluate the behavior of earnings management of enterprises.