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Research of Restatement Form the Perspective of Internal Control

Author: DingZuo
Tutor: WangZuo; YangXiaoDan
School: East China Jiaotong University
Course: Accounting
Keywords: Restatement of financial reporting internal control comprehensive evaluation model suggestion
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 13
Quote: 0
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Abstract

An increasing number of listed companies at home and abroad to publish annual, interimand quarterly financial restatements in recent years. Financial restatement is one of the mostobvious form that the quality of financial reporting is not well, may causes the decline ofstock prices in the short term as well as the rise in the company’s cost of capital, reducing theconfidence of investors. and undermine the fairness and reliability of the financial reports,reduce the allocation efficiency of the resources of socio-economic. Internal control as animportant part of modern business management, reasonable assurance as to the reliability offinancial reporting is one of the objectives of internal control.For listed companies frequently appear annual financial reports restatement, we look forthe reasons of restatements from the perspective of internal control which is more practicalsignificance. Research the connection of internal control and financial restatement, foundthe main problems that affect the effectiveness of internal control and improve the existinginternal control weaknesses, in order to provide theoretical guidance for improving the qualityof financial information, reducing the probability of financial restatements, recovering andimproving the confidence of investors, and promoting the healthy development of the capitalmarket, as well as ensuring the effective implementation of accounting standards in theenterprises.In order to study the correlation between internal control and corporate financialrestatement, the analysis and research are as follows: Chapter I focused on the literaturereview of financial restatement. Chapter II main analyzed the theoretical basis of internalcontrol and financial restatements, proposes the definition of financial restatements and howinternal control affect financial restatement. These two parts lay the foundation forestablishing research hypotheses and research model.Chapter III classified statistics for the situation of financial restatements of Chinese listedcompanies in recent years, analyzed the causes of restatements based on internal control, forthe purpose of providing direction to prevent restatements. Chapter IV is the core section ofthis article which is empirical analysis that how internal control affect restatements. On thebasis of study which from predecessors, the internal control evaluation model is established.We put forward the basic assumptions and carry out empirical analysis with SPSS software.The conclusions are as follows: the quality of internal control in restated companies wassignificantly lower than enterprises which didn’t happen restatements; the higher quality ofinternal control, the less restatements; internal control environment, risk assessment, controlactivities, supervision and inspection are significantly related to financial restatements. Chapter V was based on the empirical results of fourth part, recommendations were given toreduce financial restatements and improve the internal control system. Chapter VI was a summaryof this study and pointed out the limitations of this paper as well as the future research prospects.

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