Download or read book Determinants of Weaknesses in Internal Control over Financial Reporting written by Jeffrey T. Doyle and published by . This book was released on 2010 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine determinants of internal control deficiencies using a sample of 779 firms disclosing material weaknesses from August 2002 to August 2005. We find that material weaknesses in internal control are more likely for firms that are smaller, younger, financially weaker, more complex, growing rapidly, or undergoing restructuring. We next investigate whether these determinants differ based on whether the problem is at the transaction-level or is a more serious company-level problem. We find that firms with more serious entity-wide control problems are smaller, younger and weaker financially, while firms with account-specific problems tend to be healthy financially, but have complex, diversified, and rapidly changing operations. We also provide evidence that the determinants vary based on the specific reason for the material weakness. For example, firm size and age are strong determinants of staffing issues, consistent with each firm facing their own unique set of internal control challenges.

Download or read book Business Strategy Internal Control Over Financial Reporting and Audit Reporting Quality written by Kathleen A. Bentley-Goode and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether a company's business strategy is an underlying determinant of the strength of its internal control over financial reporting (ICFR) and auditors' internal control reporting quality. Organizational theory suggests that companies following an innovative “prospector” strategy are likely to have weaker internal controls than companies following an efficient “defender” strategy. Consistent with theory, we find that firms with greater prospector-like characteristics are more likely to report and less likely to remediate material weaknesses, incremental to known determinants of material weaknesses. We also find that auditors' internal control reporting quality is lower among clients with greater prospector-like characteristics when measured using the timeliness of reported material weaknesses. Our findings indicate that business strategy is a useful summary indicator for evaluating companies' internal control strength and suggest that internal control reporting is an important area for audit quality improvement among prospector-like clients.

Download or read book Business Strategy and Internal Control Over Financial Reporting written by Kathleen A. Bentley-Goode and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether a company's business strategy is an underlying determinant of the strength of its internal control over financial reporting (ICFR) and the quality of auditors' attestation reports concerning ICFR. Organizational theory suggests that companies following an innovative “prospector” strategy are likely to have weaker internal controls than companies following an efficient “defender” strategy. Consistent with theory, we find that firms with greater prospector-like characteristics are more likely to report and less likely to remediate material weaknesses, incremental to known determinants of material weaknesses. We also find that auditors' internal control reporting quality is lower among clients with greater prospector-like characteristics when measured using the timeliness of reported material weaknesses. Our findings indicate that business strategy is a useful summary indicator for evaluating companies' internal control strength and suggest that internal control reporting is an important area for audit quality improvement among prospector-like clients.

Download or read book Material Weaknesses in Internal Control Over Compliance for Federal Grants to U S Counties written by Julie Christine Hyde and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Audits of internal control over compliance in accordance with the Office of Management and Budget Circular A-133 indicate the presence of material weaknesses. These weaknesses highlight breakdowns in internal control and create the opportunity for financial mismanagement and fraud. This study evaluates material weaknesses in internal control over compliance for U.S. counties. Material weaknesses are mapped into internal control elements, and the study examines both entity determinants and auditor characteristics associated with the reporting of material weaknesses. This three-paper dissertation contributes to the existing literature by shedding new light on material weaknesses reported during audits of federal grants. The first paper classifies material weaknesses in internal control over compliance into the five components of the Committee of Sponsoring Organization’s (COSO) internal control framework and by the 14 compliance requirements listed in Circular A-133. The second study investigates determinants of material weaknesses using the following county characteristics: size, financial health, complexity, and the presence of a material weakness in the financial statements. The third paper examines associations with the following auditor characteristics: PCAOB firm registration, voluntary membership with the AICPA’s Governmental Audit Quality Center, the disclosure of a material weakness on the related financial statements, and initial-year auditors. Results indicate that the majority of material weaknesses are classified as control activities. Empirical results indicate that financially weak, complex counties as well as counties with material weaknesses in financial statements are more likely to report material weaknesses in compliance. In addition, auditors who report material weaknesses in county financial statements are likely to report material weaknesses in internal control over compliance and are more likely to be first-year auditors.The results of this study can benefit county managers, grantor agencies, and auditors as they review and evaluate the ability of current internal control systems to prevent and detect material errors or fraud. The results could also influence counties’ auditor selection decisions and stimulate discussions for oversight agencies to encourage auditor rotations. .

Download or read book SOX 404 for Small Publicly Held Companies 2009 written by Robert J. Sonnelitter and published by CCH. This book was released on 2008-08 with total page 436 pages. Available in PDF, EPUB and Kindle. Book excerpt: SOX 404 for Small, Publicly Held Companies is a guide to assist the management of small, publicly held companies in complying with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. This reference helps management with assessing the effectiveness of its company's internal control structure and procedures for financial reporting. In making the required internal control assessment, management may identify situations where internal controls can be improved in a cost-effective manner; this book will help management bring about these improvements.

Download or read book The Impact of Sarbanes Oxley on Internal Control Remediation written by Kam C. Chan and published by . This book was released on 2019 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study uses logistic regression analysis to examine the determinants of internal control weakness remediation on a sample of firms that reported internal control weaknesses at the end of fiscal year 2004, and then reported the presence or absence of internal control weaknesses at the end of fiscal year 2005. Our sample included 243 firms. Of these, 174 firms reported internal control weaknesses in the 2004 filing with the SEC, but had successfully remediated them one year later. The remaining 69 firms reported internal control weaknesses in 2004 and again in 2005. We found that resources available to the firms (e.g., return on assets, size) was positively associated with remediation. Use of a Big 4 auditor, having more audit committee meetings, having more business segments, having less time to remediate between the 2004 financial statement filings and the end of the 2005 fiscal year (i.e., filing lag) were negatively associated with successful remediation. Also negatively associated with remediation were the number and type (general control weakness versus specific account weakness) of internal control weaknesses the firms had.

Download or read book Accruals Quality and Internal Control Over Financial Reporting written by Jeffrey T. Doyle and published by . This book was released on 2010 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the relation between accruals quality and internal controls using 705 firms that disclosed at least one material weakness from August 2002 to November 2005 and find that weaknesses are generally associated with poorly estimated accruals that are not realized as cash flows. Further, we find that this relation between weak internal controls and lower accruals quality is driven by weakness disclosures that relate to overall company-level controls, which may be more difficult to quot;audit around.quot; We find no such relation for more auditable, account-specific weaknesses. We find similar results using four additional measures of accruals quality: discretionary accruals, average accruals quality, historical accounting restatements, and earnings persistence. Our results are robust to the inclusion of firm characteristics that proxy for difficulty in accrual estimation, known determinants of material weaknesses, and corrections for self-selection bias.

Download or read book Economic Determinants and Consequences of Voluntary Disclosure of Internal Control Effectiveness written by Chong-ŭn Yi and published by . This book was released on 2008 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the economic determinants of firms' decisions to voluntarily disclose internal control weaknesses, and the economic consequences of such disclosures, in the context of companies' initial public offerings (IPOs) of equity securities. I find that IPO firms with greater potential litigation risk and restated pre-IPO financial statements are more likely to disclose internal control weaknesses over pre-IPO financial reporting. In addition, I find that voluntary disclosure of internal control weaknesses and the related remediation procedures is negatively associated with underpricing, indicating that ex ante uncertainty about the new issues' value is reduced. Further, IPO firms benefit from such voluntary disclosure through increased IPO proceeds. The results also suggest that the new internal control disclosure requirements under SOX sections 302 and 404 have induced IPO firms to voluntarily disclose internal control weaknesses, contributing to lower information asymmetry between IPO firms and uninformed investors.

Download or read book Voluntary Internal Control Weakness Disclosures in Initial Public Offerings written by Tiffany Jo Westfall and published by . This book was released on 2016 with total page 123 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines registrants' incentives to disclose internal control weaknesses (ICWs) voluntarily in IPO registration statements and their post-IPO financial reporting quality. Using a sample of initial public offering (IPO) registrants from 2005-2013, I find that increasing management's disclosure credibility, by hiring a new CEO in the IPO, is an incentive to include ICWs in IPO registration statements. I find that management does build credibility with underwriters evidenced by IPO registrants that disclose ICWs voluntarily are associated with higher IPO offer prices. The results suggest that registrants including voluntary ICW disclosures are more likely to receive an adverse SOX 404 auditor opinion. I find that registrants' voluntary ICW disclosures are informative and are associated with negative cumulative abnormal returns only when an auditor issues an adverse SOX 404 auditor opinion after the disclosure. IPO registrants that voluntarily disclose ICWs and receive unqualified SOX 404 auditor opinions appear to be successful in mitigating negative cumulative abnormal returns. My findings provide evidence that misstatements appear to outpace material weakness disclosures for the sample of IPO registrants. Overall, the findings suggest that managers seek to build credibility through voluntary disclosure of ICWs at the IPO, allowing managers to maximize the rewards at the IPO date (i.e., IPO offer price). However, managers suffer punishment from investors if subsequent events (i.e., SOX 404 material weaknesses) call into question the credibility of the disclosure. The post-IPO financial reporting quality results are timely and relevant to regulators because the relationship between misstatements and unqualified audit opinions is puzzling. Additionally, the JOBS Act allows IPO registrants to delay SOX 404 compliance for up to five years. Finally, this study's results are important to investors because the purpose of SOX 404 is to provide an advanced warning of financial reporting weaknesses.

Download or read book Internal Control Weaknesses and Financial Reporting Fraud written by Dain C. Donelson and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether and how weak internal controls increase the risk of financial reporting fraud by top managers. There is a longstanding debate on whether control strength significantly affects fraud risk, yet little evidence on this issue. Further, there is no evidence on the mechanism linking control strength to fraud risk. We find a strong association between material weaknesses and future fraud revelation. We theorize this link could be attributable to weak controls a) giving managers greater opportunity to commit fraud or b) signaling a management characteristic that does not emphasize reporting quality and integrity. We find support for the opportunity explanation, but not through specific accounts linked to control weaknesses. Instead, consistent with the PCAOB's assertion, weaknesses in entity-wide controls, not process-level controls, are associated with a higher risk of reporting fraud.

Download or read book Internal Control in Accounting Research written by Keryn Chalmers and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2001, the US moved to regulate internal control reporting by management and auditors. While some jurisdictions have followed the lead of the US, many others have not. An important question, therefore, is the relevance of internal control to stakeholders. The more specific issue of the benefits of US-style regulation of internal control reporting is also topical. We review studies on the determinants of internal control quality and its economic consequences for stakeholders including investors, creditors, managers, auditors and financial analysts. We extend previous reviews by focusing on US studies published since 2013 as well as all non-US studies investigating IC quality including countries regulating IC disclosure as well as unregulated settings and both developed and developing economies. In doing so, we identify research questions where evidence remains mixed and new directions in which there are research opportunities.Three main insights arise from our analysis. First, evidence on the economic consequences of internal control quality suggests that the quality of internal control can have a significant effect on decision making by users of financial information. Second, the results of research on the empirical association between ownership structure, certain board characteristics and internal control quality is generally mixed. Empirical evidence concerning the association between audit committee characteristics and internal control quality generally supports a positive and significant association. Finally, while studies in non-US jurisdictions are increasing, opportunities remain to explore the determinants and consequences of internal control in other jurisdictions. Our review provides evidence for policy makers of whether there are benefits from requiring management and auditors to report on internal control over financial reporting.

Download or read book Standards for Internal Control in the Federal Government written by United States Government Accountability Office and published by Lulu.com. This book was released on 2019-03-24 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: Policymakers and program managers are continually seeking ways to improve accountability in achieving an entity's mission. A key factor in improving accountability in achieving an entity's mission is to implement an effective internal control system. An effective internal control system helps an entity adapt to shifting environments, evolving demands, changing risks, and new priorities. As programs change and entities strive to improve operational processes and implement new technology, management continually evaluates its internal control system so that it is effective and updated when necessary. Section 3512 (c) and (d) of Title 31 of the United States Code (commonly known as the Federal Managers' Financial Integrity Act (FMFIA)) requires the Comptroller General to issue standards for internal control in the federal government.

Download or read book Internal Controls Policies and Procedures written by Rose Hightower and published by John Wiley & Sons. This book was released on 2008-12-03 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt: Drawing on her many years as a consultant to numerous companies big and small, author Rose Hightower infuses Internal Controls Policies and Procedures with her wealth of experience and knowledge. Instead of reinventing the wheel, your company can use this useful how-to manual to quickly and effectively put a successful program of internal controls in place. Complete with flowcharts and checklists, this essential desktop reference is a best practices model for establishing and enhancing your organization's control framework. These manuals are favorites for organizations and companies that need a foundation and grounding to ensure an internal control posture of integrity, credibility, method, process and process: or a reminder of its importance. URLs were included when first published to encourage the dissemination and distribution of relevant chapters to those interested and in charge of the specific departments. Although times have changed, the principles professed are sound and solid for today’s accounting and business environment. Implementing these cornerstones will produce a principled manageable approach. These manuals can be used by accounting individuals, finance departments, sole proprietor businesses, large corporations, accounting / auditing students and any others interested in specific topics or general disciplines. The discipline for the oversight processes and procedures are important when introducing or implementing auditing practices whether in accounting or throughout the organization. These manuals should be used together to provide the basics when setting up a department or specific process discipline, for learning about the strengths, weaknesses and opportunities within the specific focus areas.

Download or read book The Determinants and Consequences of Disclosure Committee Adoption written by Lyle Roy Schmardebeck and published by . This book was released on 2015 with total page 190 pages. Available in PDF, EPUB and Kindle. Book excerpt: After the passage of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission recommended that companies voluntarily adopt disclosure committees to aid in preparing company disclosures. In this paper, I investigate the determinants and consequences of disclosure committee adoption. I find that companies with material weaknesses in internal controls over financial reporting and less readable 10-K filings are more likely to adopt disclosure committees. In consequences analyses, using a propensity score matched control sample and a difference-in-differences research design, I find that 10-K filings are longer and less readable after disclosure committee adoption. However, consistent with institutional theory, I do not find evidence of a reduction in information asymmetry or an increase in the informativeness of earnings following disclosure committee adoption.

Download or read book Beyond Internal Control over Financial Reporting written by Daoguang Yang and published by Taylor & Francis. This book was released on 2024-02-06 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt: By examining two different modes of internal control and the fundamentals of risk management, this book analyses the role of internal control in financing, investment, profit distribution, and corporate strategies through China's experience. In doing so, it confirms the effectiveness and superiority of internal control over operation and management. The book compares the various internal control methods used in China and the USA, namely, operation and management-oriented versus financial reporting-oriented approaches. It also discusses the differences in corporate risk attitudes and behaviours under the two approaches. The author then proposes the hyper-correction hypothesis and the trimming hypothesis. Empirical findings regarding corporate cash policy, mergers and acquisitions, tax avoidance, and diversification strategy reveal that internal control in China does not result in undue risk aversion but instead manages enterprise risk within a reasonable capacity. These results support the trimming hypothesis and demonstrate that internal control is a useful risk management tool. The title will appeal to students, academics, and accounting professionals interested in internal control (risk management), accounting, auditing and corporate finance, regulation and governance.

Download or read book Audit Committees Boards of Directors and Remediation of Material Weaknesses in Internal Control written by Beng Wee Goh and published by . This book was released on 2013 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether the effectiveness of the audit committee and the board of directors is associated with firms' timeliness in the remediation of material weaknesses (MWs) in internal control. The sample comprises accelerated filers that disclosed at least one MW from July 2003 to December 2004 under Section 302 of the Sarbanes-Oxley Act (SOX). Using logistic regression analyses, I find that firms with larger audit committees, audit committees with greater nonaccounting financial expertise, and more independent boards are more likely to remediate MWs in a timely manner. These results suggest that the audit committee and the board play an important role in monitoring the remediation of MWs. Overall, the study contributes to our understanding of the effectiveness of the audit committee and the board under the SOX regime. The study also identifies important determinants of firms' timeliness in the remediation of MWs, which is key to improving financial reporting quality and restoring investor confidence.

Download or read book How to Comply with Sarbanes Oxley Section 404 written by Michael J. Ramos and published by Wiley. This book was released on 2004-03-12 with total page 304 pages. Available in PDF, EPUB and Kindle. Book excerpt: Designed specifically for Sarbanes-Oxley Section 404 compliance, How to Comply with Sarbanes-Oxley Section 404 features: A step-by-step approach to engagement performance Original material from a leading expert in auditing and accounting Practice aids, including forms, checklists, illustrations, diagrams, and tables In-depth explanations to help professionals understand how best to approach the internal control engagement Examples and action plans providing blueprints for implementing requirements of the Act Order your copy today!