The Impact of Audit Quality and Internal Control on Earnings Management: Empirical evidence in China Public CompaniesTools QIN, QISHUANG (2020) The Impact of Audit Quality and Internal Control on Earnings Management: Empirical evidence in China Public Companies. [Dissertation (University of Nottingham only)]
AbstractEarnings management is achieved through the selection of accounting policies and the construction of real transactions. However, the accounting information is accurate but not fair. Therefore, how to suppress earnings management behavior and improve earnings quality has become a controversial topic. As the company’s internal governance mechanism, the core goal of internal control is to reasonably ensure that financial reports and related information are accurate and fair. At the same time, external auditing supervises the management from the perspective of external governance, so that the company can provide higher quality accounting information finally. Under the background of corporate governance where ownership and operating rights are separated, managers improve the principal-agent relationship through earnings management, so that earnings management information develops in the direction of their interests. Internal control and external audit supervision are two mechanisms to restrain earnings management. The purpose of this article is to explore the relationship between the quality of corporate internal control and external audit and the level of earnings management selected by accounting. Based on the theory of principal-agent theory and information asymmetry theory, through relevant literature and theoretical analysis, this paper analyses the relevance of internal control and earnings management, the relevance of audit quality and earnings management, and the role of internal control and external audit in suppressing earnings management. To test the research hypotheses proposed in this article, this article selects Chinese A-share companies listed from 2013 to 2019 as the research sample. It uses STATA16.0 for panel data processing and empirical research test. Through empirical analysis, the research results obtained are as follows: (1) The higher the quality of internal control, the smaller the degree of earnings management; (2) The higher the quality of external auditing, the lower the degree of corporate earnings management ; (3) Internal control and external auditing promote each other in the process of restraining corporate income management.
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