Internal control is a branch of accounting subject, and accounting control and risk management are the core of enterprise internal control. Previous studies have shown that high-quality internal ...control inhibits or regulates managerial overconfidence (MOC). However, it is believed that the influential factors of internal-control quality (ICQ) are normally objective factors, such as corporate characteristics, financial status, and governance structure. Corresponding to another type of constituent element, that is, the subjective factor, which we called internal-control willingness, has not been explored. In this study, we defined
as the degrees of the subjective initiative of the internal-control construction and execution activities of enterprises. In addition, we proposed a method to measure internal-control willingness based on text analysis and principal component analysis using Python, and then, we tested its impact on ICQ and MOC. Our findings are as follows: (A) internal-control willingness has a positive impact on ICQ, and (B) internal-control willingness lowers MOC. Our study introduces subjective initiative factors into the field of internal control and also extends the understanding of internal-control theory. Based on empirical conclusions, we suggested that regulatory authorities and corporate boards improve incentive mechanisms to jointly strengthen the internal-control willingness of all employees, so as to help enterprise managers operate rationally.
Trust and Financial Reporting Quality GARRETT, JACE; HOITASH, RANI; PRAWITT, DOUGLAS F.
Journal of accounting research,
December 2014, Letnik:
52, Številka:
5
Journal Article
Recenzirano
Using unique survey data from Great Place to Work® Institute, we investigate the association of intraorganizational trust (i.e., employees' trust in management) with three aspects of financial ...reporting: accruals quality, misstatements, and internal control quality. We find that trust is associated with better accrual quality, lower likelihood of financial statement misstatements, and lower likelihood of internal control material weakness disclosures. However, these effects are not uniform across all companies. Consistent with trust improving financial reporting quality through improved information production and information sharing, we find that trust is significantly associated with financial reporting quality in relatively decentralized firms, but not in firms that are relatively centralized. Our results are robust to several analyses that attempt to control for potential alternative explanations.
This study was conducted to determine the influence that internal control systems of South African (fast-moving consumer goods) SMMEs have on their economic sustainability. Both empirical research ...and, descriptive research were conducted that were of a quantitative nature. The study relied on survey research and primary data were collected from 99 South African fast-moving consumer goods SMME owners/managers using a mixture of non-probability sampling methods. From the research conducted, it was found that the internal control systems of South African SMMEs were developed using non-SMME-specific internal control frameworks. Even though the internal control systems of sampled South African SMMEs were perceived to be both adequate and effective by their owners/managers, they were found to adversely influence the economic sustainability of these business entities. This research study justifies the need for South African SMMEs to develop internal control systems using SMME-specific internal control frameworks. It also serves as a foundation for further empirical research to be conducted on the matter.
Currently, municipalities are in a stage of institutional strengthening addressing different tools to improve their management. Although they advance in different topics, in general they focus on ...aspects of legality control aimed to comply the required rendering of accounts.
A good internal control implementation would contribute to an improvement in management, presenting benefits both for these organizations and for the citizenship.
This article intends to address the current situation of internal control in small municipalities, from the survey and analysis of the second category municipalities of the province of Misiones, Argentina, in order to know through quiz of municipal accountants, what activities are carried out in this area and carry out an analysis of different aspects that could be improved in the light of good practices of this type of control.
These municipalities are taken as the unit of analysis since, being small and having a reduced administrative structure, they allow us to know the reality of the small municipalities of the country, the conclusions being applicable to the latter.
This study investigates the relationship between a firm with a sufficient number of personnel in charge of its internal controls and post-earnings announcement drift (PEAD). Having enough internal ...control personnel is expected to increase the transparency and reliability of accounting information, reduce the delay in investors' decision-making, and ultimately reduce PEAD. The empirical results show that PEAD is reduced when the size of a firm's internal control workforce is adequate. This study contributes to the literature by finding that having a sufficient number of internal personnel responsible for a company's accounting information is an additional factor that influences PEAD.
We examine the relation between internal control quality and the accuracy of management guidance. Consistent with managers in firms with ineffective internal controls relying on erroneous internal ...management reports when forming guidance, we document less accurate guidance among firms reporting ineffective internal controls. This relation extends to a change analysis, and the impact of ineffective internal controls on forecast accuracy is three times larger when the weakness relates to revenues or cost of goods sold—inputs particularly relevant to forecasting earnings. We conclude that internal control quality has an economically significant effect on internal management reports and thus decisions based on these figures.
This study investigates the impact of internal control on firms' use of derivatives. We find that firms with strong internal controls are more likely to use derivatives than firms with weak internal ...controls. In cross-sectional analyses, we find that this relationship is more pronounced for subsamples with lower executive pay-performance sensitivity, lower executive ownership, smaller board size, and higher proportion of busy directors. Additional analyses suggest that among the five components of internal control, control environment, risk assessment, information & communication, and monitoring exhibit stronger impacts on derivatives use than that of control activities. We contribute to the literature on the determinants of firms' use of derivatives and highlight some components of internal control are more critical than the others in guiding a firm's derivatives usage.
•Firms with strong internal controls are more likely to use derivatives than firms with weak internal controls.•This relationship is more pronounced for subsamples with weaker managers' and shareholder' motivation.•Among the five components of internal control, some components are more critical than the others in guiding derivatives use.
Using a sample of borrowing firms that disclosed internal control weaknesses (ICW) under Section 404 of the Sarbanes-Oxley Act, this study compares various features of loan contracts between firms ...with ICW and those without ICW. Our results show the following. First, the loan spread is higher for ICW firms than for non-ICW firms by about 28 basis points, after controlling for other known determinants of loan contract terms. Second, firms with more severe, company-level ICW pay significantly higher loan rates than those with less severe, account-level ICW. Third, lenders impose tighter nonprice terms on firms with ICW than on those without ICW. Fourth, fewer lenders are attracted to loan contracts involving firms with ICW. Finally, our within-firm analyses show that banks increase loan rates charged to ICW firms after their disclosure of internal control problems and that banks reduce loan rates after firms remediate previously reported ICW.
Understanding how auditors assess the design of controls can be challenging. In this case, you will assess and document the design of internal controls for the sales process of your client, Only ...Reliable Parts and Supplies, Inc. In Part 1, you will prepare a flowchart for the client’s sales process and evaluate the design of controls for this process based on a transcript of an interview of the client’s controller. After evaluating the process, you will prepare a written memo that summarizes your findings. After completing Part 1, information about the client’s plans to automate the sales process will be provided for you to complete Part 2. In Part 2, you will evaluate the client’s planned automation of the sales process and consider how your assessment in Part 1 is affected by the planned changes.
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