The Revision of Preliminary Financial Statement and Review Opinion on Internal Control over Financial Reporting

The purpose of this study is to analyze the demand for reporting on internal control. Nine financial statement user groups were identified and surveyed to determine whether they agree that: (1) management reports on internal control (MRIC) are useful, (2) MRICs influence decisions, and (3) financial reporting is improved by adding MRICs. In addition, the paper examined whether responses varied based on: (1) the definition of internal control used (manipulated as broad, operational definition vs. narrow, financial-reporting definition) and (2) user group. The results indicate that financial statement users agree that internal controls are important. Respondents agreed that voluntary MRICs improved controls and provided additional information for decision making. Respondents also agreed that mandatory MRICs improved controls, but did not agree about their value for decision making. Using a broad definition of controls, respondents strongly agreed that MRICs improved controls and provided a better indicator of a company's long-term viability. Executive respondents were less likely to agree about the value of MRICs than individual investors and internal auditors.

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Effect Technology Information On Quality Financial Statement With Internal Control As Moderating Variable

International Journal of Educational Research & Social Sciences ◽

10.51601/ijersc.v2i1.42 ◽

2021 ◽

Vol 2 (1) ◽

pp. 9-13

Author(s):

Aris Eddy Sarwono ◽

Asih Handayani

Keyword(s):

Information Technology ◽

Control System ◽

Financial Reporting ◽

Internal Control ◽

Local Governments ◽

Sampling Technique ◽

Financial Statement ◽

Financial Reports ◽

Internal Control System

The problem with the low quality of financial reports in local governments is the reason this research was conducted. This research was conducted with the aim of analyzing the use of information technology on the quality of financial reports by considering the internal control system (SPI) factor. The location of this research is in the Karisidenan Surakarta area which includes 6 districts and 1 city. The population of this research is all state civil servants (ASN) in local governments who work in accounting. The sampling technique was using purposive sampling method. The results showed that the use of information technology had a positive effect on the quality of financial reporting in local governments, while the internal control system moderated the effect of the use of information technology on the quality of financial reporting in local governments.

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Integration of Internal Control and Financial Statement Audits: Are Two Audits Better than One?

The Accounting Review ◽

10.2308/accr-52197 ◽

2018 ◽

Vol 94 (2) ◽

pp. 53-81 ◽

Cited By ~ 10

Author(s):

Lori Shefchik Bhaskar ◽

Joseph H. Schroeder ◽

Marcy L. Shepardson

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Audit Quality ◽

Internal Controls ◽

Data Availability ◽

Financial Statement ◽

Auditor Judgment ◽

Public Company ◽

Better Than

ABSTRACT The quality of financial statement (FS) audits integrated with audits of internal controls over financial reporting (ICFR) depends upon the quality of ICFR information used in, and its integration into, FS audits. Recent research and PCAOB inspections find auditors underreport existing ICFR weaknesses and perform insufficient testing to address identified risks, suggesting integrated audits—in which substantial ICFR testing is required—may result in lower FS audit quality than FS-only audits. We compare a 2007–2013 sample of small U.S. public company firm-years receiving integrated audits (accelerated filers) to firm-years receiving FS-only audits (non-accelerated filers) and find integrated audits are associated with higher likelihood of material misstatements and discretionary accruals, consistent with lower FS audit quality. We also find evidence of (1) auditor judgment-based integration issues, and (2) low-quality ICFR audits harming FS audit quality. Overall, results suggest an important potential consequence of integrated audits is lower FS audit quality. Data Availability: Data are publicly available from the sources identified in the text.

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SOX 404(b) Audits: Evidence from Auditing the Financial Close Process of the Accounting System

Journal of Information Systems ◽

10.2308/isys-18-055 ◽

2019 ◽

Vol 34 (3) ◽

pp. 77-103

Author(s):

Diane J. Janvrin ◽

Maureen Francis Mascha ◽

Melvin A. Lamboy-Ruiz

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Internal Controls ◽

Data Availability ◽

Financial Statement ◽

Accounting System ◽

Audit Process ◽

Financial Statement Audit ◽

Multiple Method ◽

Access Controls

ABSTRACT Auditing Standard No. 5 requires that auditors integrate their evaluation of large issuers' internal control over financial reporting (ICFR) into their financial statement audit process, but the PCAOB warns that auditors may not adequately test related manual and systems internal controls. We use a multiple method approach to examine how auditors evaluate one important component of ICFR, the financial close process, and whether they evaluate it differently when conducting a SOX 404(b) integrated versus a financial statement audit. Interviewees relied heavily on walkthroughs, and tended to perform only cursory reviews of entity-level controls related to the financial close process. In addition, they often failed to test the link between the general ledger and supporting systems, including evaluating related access controls. Financial statement-only auditors were more likely to re-perform key controls than rely on cursory walkthroughs. Auditors performing integrated audits appeared to over-rely on ICFR findings when conducting financial statement audits. Data Availability: Interview data are available from the first author. PCAOB inspection reports are publicly available.

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The Unintended Consequences of Material Weakness Reporting on Auditors' Acceptance of Aggressive Client Reporting

The Accounting Review ◽

10.2308/accr-52610 ◽

2019 ◽

Vol 95 (4) ◽

pp. 51-72

Author(s):

Tim D. Bauer ◽

Anthony C. Bucaro ◽

Cassandra Estep

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Audit Quality ◽

Unintended Consequences ◽

Unintended Consequence ◽

Financial Statement ◽

Material Weakness ◽

Material Weaknesses ◽

Licensing Effects ◽

Potential Remedy

ABSTRACT Regulators are concerned that auditors do not sufficiently identify and report material weaknesses in internal control over financial reporting (ICFR). However, psychological licensing theory suggests reporting material weaknesses could have unintended consequences for acceptance of aggressive client financial reporting. In an experiment, we predict and find auditors accept more aggressive client reporting after they report a material weakness in ICFR than after they report no material weakness. We provide evidence licensing underlies this effect. In a second experiment, we investigate the efficacy of an intervention to reduce the identified licensing effects by prompting an audit quality goal. We find this prompt mitigates the unintended consequence when auditors report a material weakness. While regulators are concerned companies are undeservedly receiving clean ICFR audit opinions, our findings indicate adverse ICFR opinions may lead auditors to give companies undeservedly clean financial statement opinions. We provide a potential remedy to this unintended consequence.

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The Determinant of Financial Statements-Content Information: Corporate Governance as a Mediating Variable

Journal of Accounting and Business Education ◽

10.26675/jabe.v1i2.8491 ◽

2017 ◽

Vol 1 (2) ◽

pp. 247

Author(s):

Siti Nurohmi ◽

Sutrisno Sutrisno ◽

Zaki Baridwan

Keyword(s):

Corporate Governance ◽

Human Resources ◽

Financial Reporting ◽

Internal Control ◽

Financial Statements ◽

Financial Statement ◽

Survey Method ◽

Human Resource Capacity ◽

Resource Capacity ◽

Content Information

This study aimed to examine the effect of human resource capacity, internal control, utilization of information technology and corporate governance of the financial statement information. Retrieving data using a survey method. The sample in this study is the head of the bureau, division chief, section chief, head of the sub-division and the administrative manager of financial spread in the working area of Perum Jasa Tirta I is Brantas River and Bengawan Solo. A total of 148 data processed using smartPLS. The results of this study indicate that the capacity of human resources and internal control affecting corporate governance, in addition to the capacity of human resources and corporate governance affects the financial statements information directly. The implication of this study is the management of Perum Jasa Tirta I must ensure that the human resources that exist in the company are resources that are competent and have sufficient internal control, so as to improve the implementation of corporate governance and financial reporting information delivered in a timely manner. Keywords: determinants of financial statements information, corporate governance.

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The Impact of Internal Audit Function Quality and Contribution on Audit Delay

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-50848 ◽

2014 ◽

Vol 34 (1) ◽

pp. 25-58 ◽

Cited By ~ 47

Author(s):

Mina Pizzini ◽

Shu Lin ◽

Douglas E. Ziegenfuss

Keyword(s):

Financial Reporting ◽

Internal Control ◽

House Of Representatives ◽

Internal Audit ◽

Financial Statement ◽

Internal Auditors ◽

External Auditors ◽

Sarbanes Oxley ◽

The Impact ◽

Relevant Work

SUMMARY The number of days required to complete financial statement audits (i.e., audit delay) increased significantly with the implementation of Section 404 of the Sarbanes-Oxley Act (SOX, U.S. House of Representatives 2002). As firms' in-house experts on internal control, Internal Audit Functions (IAFs) can substantially affect financial reporting processes and, thus, audit delay. Internal auditors can help management maintain strong internal controls and assist external auditors with financial statement audits. Accordingly, we investigate whether IAF quality and the IAF's contribution to financial statement audits affect audit delay in a sample of 292 firm-year observations drawn from the pre-SOX 404 period. Using survey data from the Institute of Internal Auditors (IIA), we develop a comprehensive proxy for IAF quality; we measure different aspects of IAF quality (e.g., competence, objectivity, fieldwork rigor); and we measure the nature of the IAF's contribution to financial statement audits (independently performed work and direct assistance). Results indicate audit delay is decreasing in IAF quality, and this decrease is driven by IAF competence and fieldwork quality. Delay is four days shorter when IAFs contribute to external audits by independently performing relevant work. High-quality IAFs contribute to financial statement audits by independently performing relevant work, while low-quality IAFs provide direct assistance.

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The Strategic Effects of Auditing Standard No. 5 in a Multi-Location Setting

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-51172 ◽

2015 ◽

Vol 35 (1) ◽

pp. 119-138 ◽

Cited By ~ 3

Author(s):

Evelyn R. Patterson ◽

J. Reed Smith

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Private Information ◽

Financial Statement ◽

Top Down ◽

Control Strength ◽

Financial Statement Audit ◽

Financial Misstatement ◽

Strategic Effects

SUMMARY Auditing Standard No. (AS) 5 provides guidance in the required audit of internal control over financial reporting and its integration into the financial statement audit. AS 5 advocates a “top-down” approach, in which control testing helps the auditor assess the risk of financial misstatement across multiple locations. We consider a manager who oversees two locations and who has private information about internal control strength in each location. Only when controls are weak can the manager commit fraud. We show how the manager's opportunity to commit fraud and informational characteristics of internal control tests impact the manager's probability choice of fraud and the auditor's choice of substantive test effort.

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Unexpected Fees and the Prediction of Material Weaknesses in Internal Control Over Financial Reporting

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x16662585 ◽

2016 ◽

Vol 33 (4) ◽

pp. 485-505 ◽

Cited By ~ 4

Author(s):

Susan M. Albring ◽

Randal J. Elder ◽

Xiaolu Xu

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Audit Fees ◽

Financial Statement ◽

Section 404 ◽

Sarbanes Oxley ◽

Material Weaknesses ◽

New Material ◽

Internal Control Weaknesses ◽

Section 302

We investigate whether prior year unexpected audit fees help predict new material weaknesses in internal control over financial reporting reported under Section 404 of the Sarbanes–Oxley Act (SOX). Predicting material weaknesses may be useful to investors and other financial statement users because these disclosures have adverse economic impacts on disclosing firms. Unexpected fees are significantly associated with material weaknesses reported under Section 404, even after controlling for Section 302 disclosures and other factors associated with internal control weaknesses. Unexpected fees are associated with company-level weaknesses but are not significantly associated with account-specific weaknesses, consistent with differences in the nature and severity of the two types of material weaknesses. Our results are consistent with unexpected audit fees containing information on unobserved audit costs and client control risks, which help predict future internal control weaknesses.

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Auditors' Training and Proficiency in Information Systems: A Research Synthesis

Journal of Information Systems ◽

10.2308/jis.2009.23.1.79 ◽

2009 ◽

Vol 23 (1) ◽

pp. 79-96 ◽

Cited By ~ 57

Author(s):

Mary B. Curtis ◽

J. Gregory Jenkins ◽

Jean C. Bedard ◽

Donald R. Deis

Keyword(s):

Information Systems ◽

Financial Reporting ◽

Internal Control ◽

Research Synthesis ◽

Financial Statement ◽

Current Status ◽

Future Research ◽

Use Of Technology ◽

Auditing Standards ◽

And Training

ABSTRACT: This paper presents a review of extant literature examining issues relating to auditors' knowledge of and training in information systems. This review is important due to the rapidly increasing use of technology in business, recent changes in U.S. auditing standards on information technology and internal control, and signals of interest by regulators in possible future standards on auditors' information systems (IS) knowledge. We review prior research both to provide information on the current status of our literature, and to identify specific questions about which there is insufficient research. Our review covers three broad areas. First, we review the current environment of IS in financial reporting and assurance, and summarize related auditing standards. Second, we consider prior research on how financial statement (“generalist”) auditors acquire and use IS knowledge. Third, we discuss research on the interaction between generalist and IS auditors. Each section concludes with suggestions for future research.

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