Since the implementation of the Sarbanes-Oxley Act, the major securities markets will have statutory requirements for internal control audits of listed companies on financial reporting. It is expected that internal control and financial statement audits will ensure the reliability of financial reports in terms of process and results. A large number of financial statement audits and financial statements have been proved to further promote the efficiency of capital allocation. However, sufficient research has not been conducted yet. Therefore, it is an important issue in the current internal control field.
The existing research mainly discusses how internal control defects affect the quality of accounting information. Doyleetal. (2007) studied the relationship between earnings quality and internal control defects of 705 listed companies that disclosed defects in internal control. Empirical tests have found that companies that disclose major deficiencies in internal controls have lower earnings quality because accrued items are less converted to actual cash flows. Chanetal. (2008) found that according to the Sarbanes-Oxley Section 404, compared with companies that did not disclose internal control defects, the degree of earnings management of companies that disclose internal control defects fell into a relationship with the quality of accounting earnings, and rectification of internal control defects on earnings quality. The impact of the discovery: (1) compared with companies without internal control defects, the quality of accounting earnings of companies with internal control defects is lower; (2) companies with internal control defects have greater positive or negative Normal accruals; (3) Compared with companies that have not carried out internal control deficiencies, companies that have undergone rectification have higher quality of earnings; (4) Changes in internal audit opinion of auditors and changes in company’s earnings Yes. Altamuro and Beatty (2010) studied the effectiveness of the Federal Deposit Insurance Corporation Improvement Act (FDI-CIA). The results show that the mandatory requirements for internal control of the Improvement Act increase the accuracy of accrued risk reserves, the sustainability of earnings, and the predictability of future cash flows, and reduce the impact on earnings robustness. Bedard et al. (2011) examined the internal control defects and their severity classification under the Sarbanes-Oxley Act Section 404 issued in 2002. The study found that the auditors were able to find about 75% of uncorrected internal controls. Defects, and most of the defects are discovered through control tests, that is, auditors can improve the quality of financial reporting.
Due to the special institutional background of our country, domestic research on internal control audit started late, mainly in the normative research and simple test, and less empirical research on the relationship between internal control audit and accounting earnings quality. Yang Youhong et al. (2009) reviewed the self-evaluation report on the internal control of the listed companies in the Shanghai stock market in 2007, and analyzed the effects and problems of these evaluations.
Zhang Jun et al (2009) found that the company's first implementation of an internal control audit can significantly reduce manoeuvrability accruals by examining 2007 Shanghai-listed companies. That is, internal control reviews can, to a certain extent, improve the earnings quality of listed companies. Zhang Longping (2010) studied the influence of the audit of internal control of A-share listed companies in Shanghai on the quality of accounting earnings. The research results show that internal control authentication can significantly improve the company's earnings quality. Among them, Zhang Jun et al. (2009) and Zhang Longping (2010) did not consider the issue of self-selection when the company decided whether or not to conduct internal control verification. Fang Hongxing et al. (2011), taking the 2009 A-share non-financial listed companies as the research object, found that the company had self-selection problems in the disclosure of internal control verification reports, and the companies that disclosed internal control assurance reports had lower levels of earnings management.
In this article, given that our listed companies disclose internal control audit reports, all of them are unqualified opinions, and basically do not disclose major control deficiencies. We use Fang Hongxing et al. (2011)'s research methods to disclose internal control audit reports through cross-sectional regression analysis. Companies and undisclosed internal control audit report companies and vertical regression analysis companies that first performed internal control audits and their matching companies more comprehensively and steadily examined the impact of internal control audits on the quality of accounting earnings, thereby exploring the effectiveness of internal control auditing.
II. Institutional background and theoretical analysis As an important component of corporate governance, the state of internal control and its effectiveness have also been increasingly concerned by regulators and the capital market. In 2008, China promulgated the "Basic Norms for Corporate Internal Control" and issued in 2010 a list of companies requiring disclosure of internal controls and other relevant information: Starting in 2011, companies listed at the same time both at home and abroad need to implement internal control audits, and internal control audits for 2012 The scope is further extended to domestic listed companies on the Main Board.
In August 2012, the China Securities Regulatory Commission and the Ministry of Finance promulgated the “Notification on the Implementation of the Internal Control System for Classifieds of Listed Companies on the Main Board in 2012†(QBO 201230), requiring that all major listed companies be listed in 2012. The construction of an internal control system should be carried out. The specific implementation is as follows: The central and state-controlled listed companies shall simultaneously disclose the annual report of the company in 2012, the internal control self-evaluation report and the internal control audit report on financial reports; the non-state-owned main board listed companies that meet the conditions shall also disclose the 2013 annual report of the company. The internal control self-evaluation report and the internal control audit report on financial reports; other Main Board listed companies should disclose the internal control self-evaluation report and the internal control audit report on financial reports while disclosing the 2014 annual report.
The specific circumstances of the disclosure of the internal control audit report of the sample company obtained in 2011 are shown in Table 1.
Table 1 Disclosure of Internal Control Audit Report in 2011 Total Statistics of Samples of Domestic and Foreign Non-domestic and Domestic Listed Companies at the Same Time of Disclosure The number of sample companies in the company listed at the same time can be seen from Table 1 that only 84 of the companies listed at the same time at home and abroad Thirty-one companies disclosed the internal control audit report issued by the auditor, while the remaining 53 only disclosed the internal control audit implementation plan. This reflects that China's corporate internal control auditing is still in its infancy, that is, although relevant policies require related companies to conduct internal control audits and disclose relevant internal control audit reports, only a few listed companies strictly implement the normative guidelines.
The previous understanding of internal control focused primarily on the relationship between company business and financial statements. For example, as part of the audit risk, the audit control risk requires the auditor to pay attention to the possibility that the audited unit's business and the corresponding accounting treatment have major deficiencies and cannot be corrected by internal control, especially the internal control system is not perfect and the implementation is not strict. The impact of audit risk. The auditors' surprise of the internal control system in addition to making appropriate improvements can not affect the actual internal control of the company, and it is difficult to reveal the effectiveness of the internal control of the company through audit opinions.
Since the scandals such as the Enron incident, corporate governance issues have received extensive attention from capital markets and regulators. One of the main contents of the Sarbanes-Oxley Act of the United States is to require clear management responsibilities, require management to evaluate internal control reports in a timely manner, specify internal control as an important part of corporate governance, and emphasize the role of senior executives in the construction of internal controls. The COSO report clearly stated that the internal control system could not be separated from the integrity and moral values ​​of the personnel responsible for designing, managing and controlling the internal control system.
Existing evidence suggests that the agency issues inherent in corporate executives and investors (such as debt covenants, compensation incentives, political costs, etc.) have prompted companies to have various incentives for earnings manipulation (Watts and Zimmerman, 1986). The surplus deviated from the true operating results. On the other hand, the agency problem among shareholders makes the controlling shareholders also carry out corresponding profit manipulation. AndMeckling (1976) can solve the existing agency problems through the supervision mechanism and binding mechanism. Better corporate governance mechanisms can effectively constrain the incentives and abilities of executives and controlling shareholders in earnings manipulation and improve the quality of accounting information. For example, Bowenetal (2008) found that companies with poor corporate governance have greater accruals for maneuverability. A sound corporate governance mechanism helps to curb earnings management, including executive changes (Moore, according to the CSRC's algorithm, the company's total market capitalization of RMB 5 billion as of December 31, 2011, and the average net profit from 2009 to 2011. More than 30 million yuan.
Of these, 90 were based on the "Guidelines for Internal Auditing of Corporate Internal Control" and 87 were based on the "Other historical accounting auditing or reviewing business of certified public accountants No. 3101" (which are all reasonable assurances, and this article considers it to be a broad-based audit).
The internal control system is an important part of the corporate governance mechanism. Its degree of improvement can not only improve the internal management efficiency of the company, but also effectively limit the ability of the senior management and the controlling shareholder to manage earnings, so that the accounting information can effectively reflect the characteristics of the economic business and its risk. On the other hand, the audit of internal controls also requires independent third parties to verify the effectiveness of the company’s internal control, and through the disclosure of audit opinion reports of the company’s internal control to the regulatory agencies and the capital market, it not only creates pressure for the company to come from regulators. At the same time, the company is also faced with the constraints of the capital market, which helps to improve its internal control system, constrain the ability of the company's controlling shareholders and senior managers to control the quality of earnings, and improve the quality of accounting information surplus.
Based on the above analysis, the research hypothesis 1 proposed in this paper is as follows: H1: Compared with the company that has not disclosed the internal control audit report, the company's accounting earnings that disclose the internal control audit report 3 are of higher quality.
As management, in terms of self-assessment of the effectiveness of internal control systems, it is often difficult to avoid the inherent constraints and selective disclosure issues that are difficult to completely avoid. Fully trust the effectiveness of the company's internal control system, this selective disclosure makes the capital market unable to identify the internal control of the listed company, and the listed company is also unprofitable because of the unrecognizable capital market, thus losing its internal control. The motivation.
The mandatory internal control audit not only helps to discover that internal control has major flaws in the process of design and implementation, but also transmits information on internal control defects to the market; at the same time, under the circumstances of mandatory internal control auditing, certified public accountants will also receive The pressure of regulators, due to the constraints of “deep pockets†and “reputational mechanismsâ€, will in-depth and objectively and comprehensively search for and analyze the major flaws in the process of internal control design and implementation during the implementation of the internal control audit process. The internal control audit report issued by the company after collecting the necessary audit evidence has certain deterrent force and legal validity.
Under the combined effect of incentive and restraint mechanisms, the company’s management attached great importance to the auditors’ internal control audit opinion and timely and effective rectification of the internal control deficiencies pointed out by the auditor, prompting the company to continuously improve its own internal control, and thus improve the company’s earnings. The role of quality. This put forward the hypothesis of this article 2: H2: Mandatory internal control audit helps to improve the company's accounting earnings quality.
(1) Sample selection and data sources This article selected Shanghai non-financial category in 2011 (financial listed companies have industry-specific characteristics, and their internal control information disclosure and internal control auditing systems have other provisions, so they are excluded). Listed companies are the research objects. We eliminated company and ST (including ST, *ST, SST) companies that have continuous data for less than 3 years, and finally got 750 sample companies. The data comes from the CSMAR database. The internal control audit report of listed companies is manually collected and arranged according to the company report published by http://www.cninfo.com.cn.
(B) The model design and variables are defined as the hypothesis 1 and hypothesis 2 of the previous article. In this paper, the accrued accrual profit (DA) is used to express the accounting earnings quality. According to the current situation, the higher the degree of earnings management, the lower the earnings quality, so the level of earnings management can be used to measure the company's earnings quality. The Jones model is usually used to calculate the accruals of operating accruals to measure the level of earnings management. Xia Lijun (2002) compares various models of measuring the degree of earnings management, and finally concludes that the Jones model with annual estimates of cross-sectional data divided by industries is the best measure of earnings management. Therefore, this paper uses this modified Jones model to measure the accrued accrued profit of DA. over t accruals (corrected through the total assets at the end of period t-1) (see model 3 for details).
Model (2) defines the net asset value. “1,†“2,†and “3†are the characteristic parameters of different industries in different years. The estimated values ​​of these characteristic parameters are obtained by regression of the model 4 based on the industry data of the year.
To test Hypothesis 1: Compared with companies that did not disclose internal control audit reports, the company's accounting earnings for disclosure of internal control audit reports are of higher quality. We have built a model 5. Company's business cycle, financial status, audit quality and corporate governance companies The operating characteristics will have an impact on the quality of earnings. It is very important to control these key characteristics when studying the impact of internal control audit on the quality of accounting earnings5.
Control variables, including: Cycle, Stdcfo, Stdsales, Lev, and whether the company discloses internal control audit reports can directly indicate whether the company performs internal control audits. .
Xia Lijun (2002) pointed out on the basis of comparative analysis that the balance sheet method is more commonly used than the cash flow statement method when calculating total accruals. Therefore, the balance sheet method is used in this paper.
The selection of control variables is based on the research of Zhang Longping (2010) and Fang Hongxing (2011).
Refinancing, Protection Industry, and Audit Opinions Disclosures of internal control audit reports of listed companies may have self-selection issues, that is, they may decide to disclose internal control audit reports when the company's original earnings management is low. Based on the assumption that the OLS regression model is random, whether the company discloses the internal control audit report is random. In the case that the company selectively discloses the internal control audit report, the OLS will be used for regression, and the regression result will be biased6.
There are two ways to correct the self-selection problem: two-stage estimation method (Heckman, 1979) and two-stage treatment effect model (Maddala, 1983). However, the two-stage estimation method easily leads to multicollinearity, and the two-stage treatment effect model is relatively more reliable. This paper uses a two-stage processing effect model to correct the self-selection problem. Specifically, for each company, there are two results - DEM. That is the processing effect. For a company, either the internal control audit report (CA, = 1) was disclosed or the internal control audit report (CAU =.) was not disclosed. The utility level in the two states determines whether the company discloses the internal control audit report. In order to represent the influence and probability of different companies disclosing the internal control audit report on earnings management, a selection model is introduced. The model is as follows: when >. CAU=1; CA* "To test hypothesis 2: Internal control audit can improve the quality of accounting earnings, build the following model: where FCAlt is an explanatory variable, and when company i first disclosed the internal control audit report, it is assigned a value of 1, otherwise it is assigned. Control variables, including: Size, Sales Growth, Lev, Refinancing, Opinion, Salary, and shareholding ratio of the largest shareholder The specific variables and their definitions of (Ratio), row model (5), model (6) and model (7) are shown in Table 2.
Table 2 Definition of Variables Definition of Manipulative Accrued Profits, see Model 1 Company Disclosures Internal Controls The audit report has a value of 1, otherwise it is.
The company's first disclosure of the internal control audit report has a value of 1, otherwise it is.
Operating cycle: Natural logarithm of company operating cycle Operating cash flow Standard deviation: Std (operating cash flow of the company for the first three years as a proportion of total assets) Standard deviation of sales income: Std (company's operating income for the first three years as a proportion of total assets) Finance Leverage: Ratio of total liabilities to total assets Refinancing: When the company issues additional shares and shares, the value is 1, otherwise it is.
Protective industries: industries protected by government (B), petroleum processing and coking (C41), ferrous metals (C65), non-ferrous metals (C67), electricity gas and water production and supply (D) The value is 1, otherwise it is.
Audit opinion: The financial statement audit report has a value of 1 for the standard unqualified opinion, otherwise it is.
Management remuneration: Top three executives' remuneration*1./ Total assets Company size: The company's total assets Book value of the natural number of equity Concentration: The top five large shareholders shareholding per share: Net profit/common stock Number of Shareholders Board of Directors: Number of Boards of Directors Board of Supervisors Size: Number of Board of Supervisors Sales Growth Rate: (Operating Revenue - Operating Revenue of the Last Year) / Operating Income of the Last Year Shareholding Ratio of the Largest Shareholder Industry: Classification is based on the industry classification standards of the Securities Regulatory Commission. The value of 1 belongs to the industry, otherwise it is... Except that the manufacturing industry takes the first two digits of the code, other industries take the first code to classify (2004) studies show that the OLS model and the conventional tool variable method exist for self-selective behavior. The estimate of the problem is biased.
The selection of feature variables is based on the research of Fang Hongxing et al. (2.11), and the principle of selecting the feature variables: (1) the feature variables are exogenous; (2) meet the recognition constraints.
The total sample size is 750, of which 208 companies have disclosed internal control audit reports (see Table 3, Table 4), accounting for 27.73% of the total sample. Among the 208 companies, all issued by auditors are unqualified auditors. The report, that is to say, there is no major defect in the internal control of the company that voluntarily disclosed the internal control audit report at the current stage of internal control audit in China, so the research design of this paper is appropriate. The average value of DA is 0.108, which discloses that the average DA of the internal control audit report company is 0.085, and the average DA of the company that has not disclosed the internal control audit report is 0.117, that is, the company's earnings quality of the internal control report is significantly higher than the undisclosed internal control. The reported company's earnings quality, and hypothesis 1. The difference between the two tests showed that the difference was significant, and the progress verified the hypothesis 1. The company that disclosed the internal control audit report for the first time in 2011 had a total of 87. Table 3 Model 5 Descriptive statistical variables Table 4 Model 5 Mean difference test accounted for 11.60 of the total sample %, accounting for an average of 41.83% of the internal disclosure of the current year's value of 0.068, including the use of the T-test to control the auditing report.
The average value of the DA of the undisclosed internal control audit report year (2010) of the pairing company is 0.086. It can be concluded that the quality of the surplus of the listed company in the year of executing the internal control audit is higher than that of the unexecuted year, that is, the internal control 5 Model 7 Descriptive Statistical Variables Table 6 Model 7 Mean Difference Test (II) Regression Results T-Test Table 7 shows the multiple regression results of Model 5.
The R2 of the model is 41.2%, and the overall interpretation ability of the model is relatively strong. After controlling the company's key operating characteristics, CA and DA were significantly negatively correlated (the regression coefficient was significantly negative, and the intercept value of the P value variable explained the control variable of the explanatory variable. The treatment effect model considering the self-selection bias correction was shown in Table 8.
The logit regression results of model 6 show that the selected instrumental variables can better replace CA; the R2 of the two-stage multivariate regression results is 41.5%, the model interpretation ability is strong; the self-selection coefficient X is significant, indicating that the company is disclosing the internal control audit report. There is a self-selection problem, which shows that it is necessary to use the two-stage treatment effect model to control the self-selection problem; after controlling the self-selection problem, CA and DA are significantly negatively correlated (the regression coefficient is significantly negative, and the P value variable interception explanatory variables control Variables Continued Variables Controlled Variables Controlled Self-Selection Coefficients Table 9 shows the multiple regression results for Model 7. The model's R2 is 33.1%, and the model's overall explanatory power is strong. After controlling the key operating characteristics of the company, FCA and DA Significant negative correlation (regression coefficient significantly negative, P value variable intercept explanatory variable control variable. In this paper, our study finds that compared with companies that have not disclosed internal control audit reports, companies that disclose internal control audit reports are relatively higher. The quality of the accounting earnings of the company. The company has a self-selection issue when deciding whether to disclose the internal control audit report. After the effect model controls the endogenous bias caused by the selection, the research results remain unchanged.At the same time, we also find that the mandatory internal control audit can improve the company's earnings quality.This shows that, in the case of the capital market system is not perfect, investors Identifying the quality of corporate accounting information is faced with higher costs. Through mandatory internal control auditing, it can effectively restrain the company's management and other insiders from using internal control deficiencies to carry out earnings manipulation motives and capabilities, thereby improving the company's accounting earnings quality.
The practical significance of this paper is that the disclosure of internal control reports can be regarded as an effective market signal. Investors can estimate the company’s earnings quality through the disclosure of the company’s internal control report when making investment decisions, thereby improving the company’s value. Make a reasonable judgment.
Although the China Securities Regulatory Commission and the Ministry of Finance promulgated relevant policies requiring different companies to implement the company's internal control system in stages and disclose relevant reports, no corresponding penalties have been given, resulting in the company not strictly complying with relevant policies and regulations. In view of the findings that internal control can improve the company's earnings quality, relevant regulatory authorities should improve relevant policies, such as increasing the penalties for failing to disclose the internal control report company on time, supervising the listed companies to improve the company’s information quality, and thereby increasing the capital market resource allocation. s efficiency.
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