Disclosure Of Internal Control Audit Reports, Audit Quality Of Financial Statements, And Market Response

At the beginning of the 21st century,financial data and management frauds occurred frequently.Internal control auditing,as an important measure to ensure the quality of financial statements,made investors pay more attention on the important role of internal control in corporate governance.In April of2010,the Ministry of Finance and other five departments jointly formulated the "Guidelines for the Application of Internal Control of Enterprises" and other supporting guidelines.According to the regulations,companies listed on the mainboard of Shanghai and Shenzhen Stock Exchange have been forced to conduct internal control audits in three batches.The significance of the implementation of this series of policies is that it marks the shift of China's internal control information disclosure from voluntary to mandatory disclosure.The internal control has been widely concerned by the academic and practical circles,and the emphasis on internal control is mainly reflected in the disclosure of internal control information of the company.To this degree,the study of market reaction of internal control audit disclosure has important theoretical and practical significance for information users,such as investors,senior management and regulators.On the basis of reviewing related domestic and foreign researches,this paper uses the principal-agent theory,signal transmission theory and information asymmetry theory which raised by the scholars before,to explain how the internal control audit report disclosure is conducive to improving the audit quality of the market response.At the same time,I select the data of 2011-2017 listed companies on Shanghai and Shenzhen Stock Exchange mainboard adopts the event study to measure the market's response to the audit quality of financial statements by the cumulative abnormal return rate of 5 working days before and after the annual report.After that,I use relevant analysis and regression analysis to check whether the disclosure of internal control audit reports can be the market response to the audit quality of financial statements has an impact.The study found out three results.Firstly,through the event study method,I found that the market response of accrued earnings quality is significantly negative.That means the audit quality is significantly positively correlated with its market reaction.In the other words,the higher the audit quality of financial statements,the more accumulated abnormal returns.Secondly,from the market reaction of the internal control audit report disclosure on the audit quality of financial statements,I found that the disclosure of the internal control audit report of listed companies in Shanghai and Shenzhen Stock Exchange mainboard can make the market response of audit quality more significant.Thirdly,select the mandatory disclosure in batches from 2011 to 2014.From the market reaction of the internal control audit report disclosure to the quality of the financial statement data,found that compared with the voluntary disclosure of internal control audit reports,the mandatory disclosure of listed companies has a more significant market response to the audit quality of financial statements.The signal transmission behavior of audit quality will be more reflected in the companies that compulsory disclosure of internal control audit reports.The market response is more positive than that of companies that voluntarily disclose internal control audit reports.Finally,this paper proposes that we should speed up the construction of the internal control legal system,improve the market supervision mechanism,improve the disclosure level of the internal control audit of listed companies,and implement the corresponding policy recommendations for the mandatory implementation of the internal control audit.And point out the inadequacies and future of the research and prospects for research.