scholarly journals Determinants of Board Contribution to Internal Controls and Good Governance: Evidence of Rural Banks in Ghana

2019 ◽  
Vol 9 (4) ◽  
pp. 85
Author(s):  
Rauf Ibrahim ◽  
Du Jianguo ◽  
Santosh Rupa Jaladi ◽  
Peter Lartey Yao ◽  
Amponsah Clinton Kwabena
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Good Governance ◽  
Internal Audit ◽  
Principal Component ◽  
Convincing Evidence ◽  
Internal Controls ◽  
Strategic Decisions ◽  
Increasing Functions ◽  
Structured Questionnaire

This article attempts to explain the factors that affect the board’s behavior when it comes to enhancing internal controls in financial institutions, particularly rural banks. The variables examined in this study are not different from the traditional determinants of board effectiveness or internal controls, but except that between all the five variables measured four are technically board characteristics while one relates directly to internal controls. A total of 459 valid structured questionnaire were analyzed based on the feedback gathered from various banks where employees, management and board members shared their views on the factors that would influence the board’s posture to enhance good governance and internal controls. The outcome of the study provided a convincing evidence that, internal audit, external consultancy and the audit committee are dominant determinants of internal control and good governance. Subsequent, examinations using the R square also confirms accuracy of predictions recorded in the principal component analysis. Further studies may analysis the size of the board relative to the increasing functions of ensuring compliance, independence and strategic decisions. This analysis is based on an African institutional context, but could be a universal tool.

Why did management and auditors fail to identify ineffective internal controls in their initial SOX 404 reviews?

2008 ◽  
Vol 7 (4) ◽  
pp. 338-354 ◽  
Author(s):  
Kam C. Chan ◽  
Picheng Lee ◽  
Gim S. Seow
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Internal Controls ◽  
Control Group ◽  
Corporate Boards ◽  
Content Type ◽  
Factors Affecting ◽  
Factors Associated ◽  
Client Relationship

PurposeThe purpose of this paper is to investigate the rationale for the failure of management and auditors to identify material internal control weaknesses (ICWs) in their initial Sarbanes‐Oxley Act of 2002 (SOX) 404 reviews, resulting in subsequent restatement of their opinions.Design/methodology/approachThe paper focuses on the factors associated with the failure of management and auditor to identify material internal controls weaknesses in their initial SOX 404 reports. Logistic regression is run on a sample of 56 firms that reported material internal controls weaknesses in their amended internal control reports and a control group of 344 firms that reported material internal controls weaknesses (i.e. ineffective internal controls) in their initial internal control reports for 2004.FindingsThe results show that firm size, the use of a Big 4 auditor, the ratio of non‐audit to total fees, and the need for accounting restatements are positively associated with the probability to file an amended internal control report. The number of ICWs and the number of audit committee meetings are negatively associated with the probability to file an amended internal control report.Practical implicationsThe paper's findings suggest that regulators and corporate boards should consider providing more guidelines on audit committee practices in addition to the audit committee structure. For example, more guidance by the board is needed to ensure that the audit committee is active in overseeing the company's auditor–client relationship and its internal audit function.Originality/valueEmpirical findings on factors associated with the failure of management and auditor to identify material ICWs in their SOX 404 review can contribute to an understanding of factors affecting the efficiency of the SOX 404 review by attributing such failure to either inherent factors such as operational complexity and industry membership or to managerial choices in auditor‐client relationship and corporate governance issues. An understanding of these factors can help companies and the Public Company Accounting Oversight Board and the Securities and Exchange Commission in their efforts to improve the effectiveness and the efficiency of the current SOX 404 process.

How Effective are Organizations' Internal Controls? Insights into Specific Internal Control Elements

2012 ◽  
Vol 6 (1) ◽  
pp. A31-A50 ◽  
Author(s):  
Dana R. Hermanson ◽  
Jason L. Smith ◽  
Nathaniel M. Stephens
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Financial Services ◽  
Audit Committee ◽  
Internal Audit ◽  
Internal Controls ◽  
Component Level ◽  
Public Companies ◽  
Tone At The Top ◽  
Survey Responses

SUMMARY Based on survey responses from approximately 500 Chief Audit Executives (CAEs) and other internal auditors, this article provides an insider's view of the perceived strength of organizations' internal controls (i.e., internal control over financial reporting) in the Control Environment, Risk Assessment, and Monitoring components of the Committee of Sponsoring Organizations' (COSO 1992a) Internal Control—Integrated Framework. Although the respondents largely rate control strength as relatively high, we identify several areas for potential improvement of internal controls, especially related to assessing the “tone at the top,” as well as following up on deviations from policy and management override of controls. In analyzing individual control elements, we find that public companies' controls are consistently rated as more effective than those of other organizations. We also find a number of interesting differences across key industries, especially in the Monitoring component, where banks and other financial services firms appear to have more robust Monitoring controls than do healthcare and other services firms. The component-level analysis reveals that internal control component strength is positively related to the CAE reporting primarily to the audit committee, public company status, and the average tenure of the internal audit function staff, among other findings. Based on the survey findings, we describe key implications relevant to internal and external auditors, accounting researchers and educators, and management.

scholarly journals Sustaining competitive advantage through good governance and fiscal controls: Risk determinants in internal controls

2020 ◽  
Vol 18 (1) ◽  
pp. 34-46
Author(s):  
Md. Jahidur Rahman ◽  
Rob Kim Marjerison
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Rapid Growth ◽  
Audit Committee ◽  
Good Governance ◽  
Geographic Distance ◽  
Negative Relationship ◽  
Internal Controls ◽  
Future Research ◽  
The Board Of Directors

This study conducts a comprehensive review of the literature published during 1989-2020 to identify the factors that can cause internal control weakness. This review is organized around five main groups, namely: 1) rapid growth and restructuring, 2) financial reporting complexity, 3) auditor tenure, 4) cultural differences, and 5) corporate governance. We perform an integrated literature review approach. Among the several factors found, some factors (the proportion of managerial ownership, Individualism, power distance, financial reporting complexity, rapid growth, and auditor-customer geographic distance) have a positive relationship with internal control weakness while others (the quality of the board of directors and auditing committees, directors’ compensation, and uncertainty avoidance) have a negative relationship. The findings contribute to future research by examining the factors that can cause internal control weakness from different perspectives, which will prove to be useful for investors, auditors, audit committee members, managers, and other stakeholders regarding the prevention of internal controls weaknesses through the application of solid internal controls as well as a path towards the improvement of existing problems of internal control weakness.

Effects of reporting relationship and type of internal control deficiency on internal auditors’ internal control evaluations

2018 ◽  
Vol 33 (3) ◽  
pp. 318-335 ◽  
Author(s):  
Audrey Gramling ◽  
Arnold Schneider
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Internal Controls ◽  
Material Weakness ◽  
Content Type ◽  
Internal Auditors ◽  
Tone At The Top ◽  
Internal Audit Function ◽  
Professional Guidance

Purpose This paper aims to explore whether an internal auditor’s evaluation of internal control deficiencies are influenced by the party with primary influence over the internal audit function and by the type of internal control deficiency. Design/methodology/approach A behavioral experiment is conducted with internal auditors as participants in a 2 × 2 between-subjects factorial design. Findings Results indicate that internal auditors are less likely to evaluate a pervasive control deficiency related to “tone at the top” as a material weakness than a process-specific control deficiency. Furthermore, internal auditors are somewhat less likely to evaluate a process-specific internal control deficiency as a material weakness when management has primary influence over the internal audit function than when the audit committee has primary influence. It is also found that the best practice of internal audit oversight (i.e., primary oversight of internal auditors by the audit committee) may lead to potential internal under-reporting of instances where the audit committee represents a material weakness in internal control. Research limitations/implications Limitations of this research include lack of economic consequences (e.g. future pay and job loss) associated with the internal control decisions made by the participants; less concise information provided to the participants than would generally be available to them; and lack of generalizability of the findings beyond the specific company setting and internal control scenario portrayed in the case materials. Practical implications Not evaluating a pervasive control deficiency related to “tone at the top” as a material weakness seems to not fully align with relevant professional guidance and can possibly result in inaccurate internal information about the quality of internal controls. Furthermore, having an internal auditor’s evaluation of a process-specific internal control deficiency influenced by the party with primary influence over the internal audit function would not appear to align with relevant professional guidance. Finally, primary oversight by the audit committee of the internal auditors may lead to potential internal under-reporting of instances where the audit committee represents a material weakness in internal controls and, thus, possible communication of inaccurate internal control information. Originality/value This study is the first to address whether the party with primary influence over the internal audit function influences an internal auditor’s evaluation of internal control deficiencies.

External Auditors' Involvement in the Internal Audit Function's Work Plan and Subsequent Reliance Before and After a Negative Audit Discovery

2016 ◽  
Vol 35 (4) ◽  
pp. 159-173 ◽  
Author(s):  
Byron J. Pike ◽  
Lawrence Chui ◽  
Kasey A. Martin ◽  
Renee M. Olvera
Keyword(s):  
Internal Control ◽  
Internal Audit ◽  
Internal Controls ◽  
Professional Standards ◽  
Data Availability ◽  
Internal Auditors ◽  
External Auditors ◽  
Internal Audit Function ◽  
Anchoring Bias ◽  
Before And After

SUMMARY To reduce redundancies and increase efficiency in the evaluation of internal controls (PCAOB 2007, 402–403), professional standards encourage coordination between external auditors and their clients' internal audit function (IAF). Recent surveys of internal auditors find that a component of this coordination is external auditors' involvement in developing the IAF's audit plans. Nevertheless, it is not known how such involvement affects external auditors' reliance on the internal control test work of the IAF, either before or after a negative audit discovery. Based on an experiment with 107 experienced auditors, we find that external auditors involved in the development of the IAF's audit plan perceive the IAF as more objective and that both objectivity and involvement contribute to these auditors' placing more reliance on the IAF as compared to external auditors with no involvement. This initial reliance results in the involved auditors' proposing reductions to the audit budget and re-performing less of the IAF's work. Consistent with an anchoring bias, we find that involvement leads to external auditors' continuing to place greater reliance on the IAF's work, even after they become aware of a negative audit discovery that should not have occurred had the client's controls been effective. Data Availability: Data are available from the authors on request.

The Role of Accounting Mechanisms for Corporate Governance in Reducing Creative Accounting Practices in Telecommunications Sector Companies in Riyadh City: An Empirical Study: دور الآليات المحاسبية لحوكمة الشركات في الحد من ممارسات المحاسبة الإبداعية في شركات قطاع الاتصالات بمدينة الرياض: دراسة ميدانية

2020 ◽  
Vol 4 (15) ◽  
Author(s):  
Lamis Jameel Banasser, Maha Faisal Alsayegh
Keyword(s):  
Corporate Governance ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Internal Auditors ◽  
External Auditors ◽  
Riyadh City ◽  
Creative Accounting ◽  
Telecommunications Sector

The study aimed to identify the role of accounting mechanisms for corporate governance in reducing creative accounting practices in telecommunications sector companies in Riyadh city. A descriptive analytical approach was followed to conduct the field study. Sample of the study consisted of members of the audit committee, internal auditors, accountants from the surveyed telecommunications’ sector companies, and the external auditors in the audit offices that specialized on auditing the examined sample of companies. Questionnaire was used as a data collection method. Results showed that activating the role of accounting mechanisms for corporate governance can greatly contribute in limiting creative accounting practices. As they are controlling mechanisms that capable of protecting companies, shareholders and stakeholders from any manipulation or misleading information in the financial statements. Further, internal audit plays a major role in limiting creative accounting practices by examining and evaluating the effectiveness of the internal control system. Furthermore, the independence and competence of the external auditor and his commitment to the rules of conduct and ethics of the profession contribute greatly in limiting creative accounting practices in the examined companies. The study recommended the necessity of holding specialized training courses for members of audit committees, internal auditors and external auditors on methods of detecting creative accounting practices to combat and reduce them.

scholarly journals The role and tasks of the internal audit and audit committee as bodies supporting effective corporate governance in insurance sector institutions in Poland

2012 ◽  
Vol 3 (4) ◽  
pp. 23-39 ◽  
Author(s):  
Elżbieta Izabela Szczepankiewicz
Keyword(s):  
Control Systems ◽  
Internal Control ◽  
Audit Committee ◽  
Economic Recession ◽  
Internal Audit ◽  
Financial Supervision ◽  
Insurance Sector ◽  
Internal Control System ◽  
The Impact ◽  
Effective Supervision

Faced with the risk of consecutive waves of financial crisis and economic recession, government committees, financial supervision authorities and financial institutions themselves – both in Poland and worldwide – have launched a number of measures to make the supervision of insurance sector institutions more effective, particularly in aspects related to efficient risk management and internal control. The article describes the impact of the amendment of laws and other regulations on the development of the present internal control systems in insurance sector institutions. It draws attention to the need for a new structure of the internal control system, and the role and purpose of the internal audit and the audit committee as the bodies supporting effective supervision in insurance undertakings and reinsurance undertakings.

scholarly journals PERANAN AUDIT INTERNAL DALAM MENUNJANG EFEKTIVITAS PENGENDALIAN INTERNAL ATAS BIAYA PRODUKSI AIR MINUM DALAM KEMASAN 240ML PADA PT. AQUA GOLDEN MISSISSIPPI TBK.

2016 ◽  
Vol 2 (1) ◽  
pp. 46-65
Author(s):  
Arief Tri Hardiyanto
Keyword(s):  
Internal Control ◽  
Production Cost ◽  
Rank Correlation ◽  
Internal Audit ◽  
Internal Controls ◽  
Bottled Water ◽  
Production Costs ◽  
Control Cost ◽  
Strongly Agree

This study shows how the role of internal audit is adequate can play a role in supporting the effectiveness of internal controls over the production cost of bottled water 240ml at PT. Aqua Golden Mississippi Tbk. (Branch Mekarsari). The method used in this research is descriptive statistic by using Spearman Rank correlation coefficient with n = 15 and a significant level of 0.05. Based on the research that has been described, it can be concluded that the respondents in the role of internal audit is adequately provide answers strongly agree and agree amounting to 96.1% of respondents regarding the effectiveness of internal control over production costs by 97.02% answered strongly agree and agree, The role of internal audit in supporting the effectiveness of internal controls over the production cost of bottled water 240ml including a very strong, which is 89.96%. While the remaining 10.04% influenced by other factors not included in the research conducted by the author. Thus it can be said that adequate internal audit was instrumental in supporting the effectiveness of internal controls over the production cost of bottled water 240ml at PT. Aqua Golden Mississippi Tbk. (Branch Mekarsari).Keywords: Internal Audit, Internal Control, Cost of Production

The Effect of Frequency and Automation of Internal Control Testing on External Auditor Reliance on the Internal Audit Function

2015 ◽  
Vol 30 (1) ◽  
pp. 21-40 ◽  
Author(s):  
Maia J. Farkas ◽  
Rina M. Hirsch
Keyword(s):  
Internal Control ◽  
Work Performance ◽  
Internal Audit ◽  
Internal Controls ◽  
External Auditors ◽  
Internal Audit Function ◽  
Remediation Strategies ◽  
Low Degree ◽  
External Auditor ◽  
Manual Testing

ABSTRACT Failure of the internal audit function (IAF) to detect a significant deficiency in internal controls is a significant shortcoming in the IAF's work performance. This shortcoming in the IAF's work performance reduces external auditors' willingness to rely on the IAF's work. Using a two-stage experiment, we investigate how the implementation of three different internal control testing remediation strategies (akin to CCM, ACL, and periodic manual testing), which vary in their automation and frequency, affect external auditors' perceptions of IAF strength and planned reliance on the IAF's work. We find that automated remediation strategies fully remediate external auditors' perceptions of poor IAF work performance and low degree of reliance on the IAF, whereas manual remediation strategies result in only partial remediation. Counterintuitively, less frequent remediation strategies are more effective at improving perceptions of poor IAF work performance and low levels of reliance on the IAF, relative to continuous remediation strategies.

scholarly journals White Collar Fraud: A Case Study of KOSS

2016 ◽  
Vol 3 (1) ◽  
pp. 22
Author(s):  
Gagan Kukreja ◽  
Robert Brown
Keyword(s):  
Audit Committee ◽  
Internal Audit ◽  
White Collar ◽  
Internal Controls ◽  
Accounting System ◽  
Financial Statement Fraud ◽  
External Auditors ◽  
Executive Staff ◽  
American Express

Fraud does not draw community and political reaction like other crimes (Chapman & Smith, 2001) yet many believe that fraud can be as serious or even more serious than certain types of street crimes (Rebovich & Kane, 2002). The financial statement fraud of KOSS, an American company of more than $34 million was discovered in 2009 after the tipoff from American Express to Michael Koss, CEO. The fraud was significant relative to the size, turnover and profit of the organization perpetrated by senior accounting professional (white collar). KOSS would be classified as an SME and this fraud emphasizes that it is not only large organizations that need to be vigilant regarding accounting frauds and internal controls, but smaller companies as well. Because of its size, KOSS had little segregation of duties and, as was later revealed, massive weaknesses in internal controls. The external auditors, (Grant Thornton, LLP or “GT”) upon whom management were relying, did not have a full understanding of the business and clearly did not meet the expectations of senior management. It is also appeared that auditors failed to apply required audit standards during the audit. Later on, the external auditors agreed to pay KOSS compensation worth $8.5 million in July 2013 as a settlement.The board of directors including audit committee appeared to be unconcerned regarding effective internal controls, risk management and (wrongly) assumed that they could trust their senior executive staff. The board’s limited policy of ethics and compliance was outdated and did not include a whistleblowing policy. There was no internal audit function reporting to the board. Further, the computerized accounting system was outdated and lacked the application controls found in more modern applications. The purpose of this case study is to analyze what went wrong at KOSS, who was involved in fraud and how such kind of frauds can be avoided in future.

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