We address whether SOX 404(b) internal control audits under two auditing standards regimes and SOX 404(a) management assessments are associated with improved internal control system quality, an ...important and largely unstudied potential benefit. In 2013, the PCAOB disclosed that 15 percent of inspected control audits were ineffective, suggesting that the current control auditing standard may not be sufficient to induce implementation of high-quality control systems. We use an indirect measure of internal control system quality—future unaudited accruals quality—to proxy for internal control quality because sustained internal control improvements should be exhibited in future quarterly financial reports unaltered by contemporaneous financial statement audits. We find that internal control audits initially provided internal control quality benefits. After the 2007 auditing standards change, internal control quality deteriorated for ICFR audited versus unaudited firms. Finally, we find limited evidence that management assessments affect internal control quality. Results indicate that recent PCAOB concerns may have merit.
SUMMARY 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 that this link could be attributable to weak controls (1) giving managers greater opportunity to commit fraud, or (2) 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. JEL Classifications: M41.
In the traditional cognition, the factors that affect the level of internal control are usually based on the objective factors such as corporate characteristics, financial status, and governance ...structure. However, the internal control defects of many famous companies expose the phenomenon of subjective manipulation, and this leads us to focus on the subjective factor of internal control, which we call internal-control willingness. We define “internal-control willingness” as the degrees of subjective initiative of the internal-control construction and execution activities. Additionally, we propose a method for measuring internal-control willingness, using text analysis and machine learning. Then, we examine the impact of internal-control willingness on enterprise risk-taking, through the internal-control, financial, and market data of China A-share main board enterprises in 2011–2018. The study found that (1) internal-control willingness has a significant positive impact on internal-control level, which can fairly achieve the measurement of internal-control subjective initiative. (2) It confirms that internal-control willingness lowers corporate risk-taking. (3) Further research finds that state-owned enterprises strengthen internal-control willingness and their risk-taking level is significantly lower than that of non-state-owned enterprises. This paper suggests that the regulatory authorities actively urge the board of directors to strengthen internal-control willingness.
The purpose of this study was to determine the effectiveness and efficiency of internal control in managing human resources at XYZ Gas Stations. This research uses a qualitative method. This research ...collected primary data by conducting interviews with the Director, Manager, and Supervisor of XYZ Gas Station and documenting related files. Researchers found several problems related to human resource management such as contracts with partners and Pertamina Corporation that are not clearly managed, employees who do not carry out their job descriptions properly, inaccuracy in calculating sales rewards and ineffective HR control systems. The results of this study indicate that human resource management including internal control implemented by XYZ Gas Station has not run optimally and XYZ Gas Station must discuss with the Internal Control Unit in handling human resource management.
Using data from Chinese listed firms for the period 2012–2018, we provide new evidence that the intensity of non‐executive equity incentives can reduce the likelihood of internal control weaknesses ...and improve internal control effectiveness. We also find that internal control weaknesses are more likely to be remedied in firms that implement strong non‐executive equity incentive polices. Besides, we document novel results that employee equity incentives for non‐executives can optimise the internal environment, improve the internal supervision system, and thereby reduce the operational‐level weaknesses of a company’s internal controls.
This paper investigates the relationship between political connections and firm value, as well as the moderating effect of internal control under exogenous shocks. By manually collecting 20 staggered ...downfall events during China's anti-corruption campaign since 2012, we observe that the termination of political connections results in an approximately 2% decline in equity value for private firms at the point of event, and effective internal control attenuates the negative price reaction to the loss of linkage. These findings infer the existence of benefits from maintaining political ties in business operations. Despite the value decline for connected firms, we further conclude that internal control system can be a useful channel of value protection in political shocks. Finally, our results survive a battery of sensitivity tests.
•The termination of political connections during anti-corruption campaign leads to a decline in equity value for private firms•Internal control is an effective mechanism to mitigate the loss of economic value in negative events•The exogenous shock provides a quasi-natural experiment to examine the causal effect of political connections on firm value
This research examines the influence of financial report accessibility and human resource competency on zakat financial accountability with internal control as a moderating variable. This research is ...quantitative research by processing primary data using a questionnaire. The population of this research is all 268 executive and supervisory agency employees from 35 Lazismu regional offices in Central Java. Sample selection was carried out using a purposive sampling method so that 120 research samples were obtained. The data analysis technique used in this research is the quantitative structural equation modeling-partial least squares (SEM-PLS) analysis method using SmartPLS version 4.0 software. The research results show that the accessibility of financial reports and human resource competency positively affect Zakat's financial accountability. Internal control can strengthen the influence of financial report accessibility on Zakat's financial accountability. However, internal control weakens the influence of human resource competency on Zakat's financial accountability. The results of this research can be used as reference and comparison material for further research. Then, the research results can be used for consideration, input, and thought contribution, especially regarding increasing accountability in zakat financial management.
Purpose: The aim of the research is to define the importance of Corporate Governance (CG) and its role in providing appropriate environment to operate the internal control system (ICS) to achieve ...goals of non-profit governmental institutions.
Theoretical framework: The research included defining the nature of corporate governance in light of the internal control systems in Iraqi government institutions that are not aimed at achieving profits.
Design/methodology/approach: The research was implemented on a sample of non-profit governmental institutions. The researcher used the descriptive method in the theoretical aspect and analysis in the applied aspect. The research reached a set of conclusions, and the research came out with a set of recommendations that serve its objectives.
Findings: The study concluded that there is a relationship between the main and secondary variables, and we conclude from the results that activity of the higher administrations should not be limited to directing the dissemination of the concepts and principles of institutional governance.
Research, Practical & Social implications: In light of the adoption of the concept and principles of institutional governance. And efficient ICS that are able to lead the modernization trends in the public service without giving way to the spread of administrative and financial corruption, which has become a scourge that afflicts the body of the Iraqi government institutions at the present time.
Originality/value: This study is one of the limited studies that dealt with corporate governance in non-profit organizations in Iraq, in light of the high levels of administrative and financial corruption, as well as weak internal control systems.
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