The aim of this study is to examine the effect of
control self-assessment (CSA) on financial reporting quality by
using CSA as a proxy of monitoring quality. CSA has an
important feature that allows the employees themselves to become
involved in the assessment of internal controls’ effectiveness.
Moreover, CSA has two important monitoring functions. First, it
can add value to internal auditing. Second, because all employees
of operational units participate in the assessment of internal
controls in CSA, that control environment is expected to be
mature. The investigation of this study used data from 3,517
Japanese firms listed on the First Section, Second Section,
Mothers, and JASDAQ of the Tokyo Stock Exchange. The result
of 2SLS regression shows that CSA adoption has a negative
relationship with the number of financial restatements and audit
fees, and therefore, I conclude that CSA has positive
consequences for financial reporting quality. This result indicates
that the internal monitoring mechanism that continuously
monitors internal control over financial reporting (ICFR)
effectiveness and in which all employees participate has some
positive effects on financial reporting quality. There are two
reasons for this result. First, employees have easier access to
negative information concerning ICFR effectiveness than
outsiders and can share that information with the internal
personnel in charge of monitoring (e.g., internal auditors).
Moreover, CSA is expected raise an entity’s awareness of ICFR,
that is, the control environment of ICFR components is made into
an environment that prevents and detects impropriety in the
accounting process.
Keywords: Control
Audit Fees and Financial Reporting Quality: A Study of Listed Companies in Nigeria
