The Impact of Internal Control Quality on Accounting Conservatism

Abstract

This paper establishes the evaluation index system of the quality of internal control of commercial banks. Then the paper combined with the improved adding calculated by entropy method within the accrual cash flow model of quality control index, the presence of internal control and the level of accounting conservatism were considered. This paper aims at figuring the relationship between the ability to internal control and accounting conservatism of listed commercial banks through the study, the representative of the financial field of the enterprises to strengthen internal control system to establish and improve the theoretical basis of information disclosure quality. Index Terms - The quality of internal control; Accounting Conservatism; Listed commercial banks. internal control quality, the assessment concluded the company self-assessment report, external auditors, sponsors and the board of directors or the supervisory board of the internal control evaluation could reflected the quality of internal control. Ref. (3) was proposed by Kong Fanfeng. He collected several listed Corporations' evaluation report of their internal control , and provide the audit report opinion type, in which the firm of listing Corporation in the stock exchange to be punished as a judgment of whether the company has major defects based on the internal control. Ref. (4) was proposed by Zhang Xiaolan, Shen Haojie, Yang mo. They) chose13 index form the self-evaluation and audit reports of the internal control in the listed Corporation based on COSO internal control framework concept. By using means of entropy model, he established the calculation method of internal control quality named ICDQ from two aspects of relevance and reliability. Not only does the internal control information index constructed by this method involves many aspects of the information objectively, but also can it reflect the quality differences between enterprises effectively. Overall, the research on quality of information disclosure of the internal control of the company went through three stages. First, the level of detail by enterprise internal control disclosure of information, this method was lack of objectivity, and using the amount of information as the criterion of effective information was not accurate. Second, utilize dummy variables like 0 or 1 to quantify the quality of internal control. If large amount of data processing, the tedious work of the case, this approach can reflect the advantage, but for some data internal audit report, this method would neglect the accuracy of information. Third, compared to the previous methods, the use of entropy model has two advantages, one is the internal control information can cover many enterprises finally, as a comprehensive index to reflect the results. Another is that when the information to consider become variable, model can also hold them. Therefore, this paper uses the entropy model to calculate the data quality of internal control of listed commercial banks About the study on measurement method of accounting conservatism, Ref. (5) was proposed by Basu. He proposed surplus stock returns the inverse regression measurement method (AT), using the timeliness of accounting conservatism and the properties of inverse coefficient in the regression model to reflect the economic losses in earnings. In order to figure the enterprise's accounting conservatism, Ball and Shivakumar thought AT method was born in the condition that America securities market so the effectiveness of the market