The Effect of Characteristics of Human Resources in Internal Accounting Control and Corporate Governance on Asset Misappropriation

2015 ◽  
Vol 44 (6) ◽  
pp. 1759
Author(s):  
Han Soo Bae ◽  
Sunkook Kwon
Keyword(s):  
Corporate Governance ◽  
Human Resources ◽  
Asset Misappropriation ◽  
Internal Accounting Control ◽  
Accounting Control ◽  
Internal Accounting

scholarly journals The Effect Of Human Resource Investment In Internal Accounting Control On Cost Stickiness

2015 ◽  
Vol 31 (5) ◽  
pp. 1719-1732 ◽  
Author(s):  
Soo-Joon Chae ◽  
Kiwi Chung
Keyword(s):  
Control System ◽  
Human Resources ◽  
Stock Exchange ◽  
Agency Problem ◽  
High Ratio ◽  
Optimal Size ◽  
Public Announcement ◽  
Internal Accounting Control ◽  
Accounting Control ◽  
Internal Accounting

This study examined the characteristics of internal accounting control system based on size of human resources assigned to the system to verify whether downward stickiness of total cost and selling and administrative expenses differentially appears according to the level.An entrepreneur who wishes to maximize one's utility has an incentive to externally grow the enterprise beyond the optimal size or to possess idle resources, creating cost sticking phenomenon by possessing surplus resources even when sales volume decreases. Previous studies verified the effect of control system intended to resolve the agency problem on asymmetry of cost. This study expanded the scope of previous studies to consider internal accounting control system as a monitor of the agency problem. Enterprises that effectively operate internal accounting control system are expected to show limited opportunistic incentive of the entrepreneurs because of reduced agency cost.The main purpose for enterprises to establish and operate internal accounting control system is to provide accurate and reliable financial information to investors by preventing or uncovering accounting scandals of the management and possibility of errors. Internal accounting control system of Korea was first introduced in September 2001 through 'Corporate Restructuring Promotion Act', and Financial Supervisory Service announced the regulation on public announcement in September 2002 as a series of relevant measures. The regulation requires enterprises to publicly announce the number of workers in each department in charge of internal accounting control system on the internal accounting control system report. Under the presumption that internal accounting control can be more effectively done by increasing the number of workers in charge of internal accounting control system, the intent of such public announcement is to provide external interested parties with information that can be used to determine whether internal accounting control system of an enterprise is being effectively managed. Accordingly in this study, enterprises with large size of human resources assigned to internal accounting control system were predicted to show relaxed downward stickiness of cost.As a result of verifying 2,532 enterprise-year samples listed on Korea Stock Exchange between 2003 and 2008, enterprises with larger size of human resources assigned to internal accounting control system were found to show relaxed downward stickiness of cost. This means that an enterprise with large number of workers assigned to internal accounting control system can effectively monitor the enterprise, which can efficiently control opportunistic decisions of the entrepreneur such as downward stickiness of cost. As an additional analysis, human resources were classified into departments to which persons in charge of internal accounting are affiliated to examine the effect on downward stickiness of cost. As a result of verification, high ratio of internal accounting personnel assigned to accounting department resulted in relaxed downward stickiness of cost. Accounting departments in charge of preparing for financial statements were more effectively performing monitoring work compared to other departments.

scholarly journals The Effect Of Internal Control Weakness On Investment Efficiency

2016 ◽  
Vol 32 (3) ◽  
pp. 649-662 ◽  
Author(s):  
Lee Jaehong ◽  
Cho Eunjung ◽  
Choi Hyunjung
Keyword(s):  
Corporate Governance ◽  
Internal Control ◽  
Investment Decision ◽  
Investment Efficiency ◽  
Accounting System ◽  
Accounting Quality ◽  
Severe Problem ◽  
Internal Accounting Control ◽  
Accounting Control ◽  
Internal Accounting

This paper examines whether material weakness in internal accounting control is negatively associated with investment efficiency in Korea. Since internal accounting control weakness drives poor accounting quality and poor accounting quality exacerbates information asymmetry between firms and outside capital suppliers, managerial investment cannot be monitored effectively which result in over- and/or under- investment. Since internal accounting system is closely related to corporate governance, weak internal accounting control is often associated with poor corporate governance, and this control environment makes it hard to monitor managerial opportunistic behavior, causing abnormal investment such as over- and/or under- investment.  We find that firms with internal accounting control weakness tend to make over- and under- investment. We also find the number of weakness in internal accounting control is negatively related to investment efficiency. In addition, three types of qualified review opinion - overall company level weakness, account-specific weakness and disclaimer review opinion due to scope limitation - are differentially affected to investment efficiency; disclaimer review opinion is present the most severe problem in internal accounting control that drives over- and under- investment. Our findings suggest weak internal accounting control provides poor monitoring to manager and cannot restrain managerial inefficient investment decision. 

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