Material weakness disclosures and restatements: value of external auditor attestation

Binod Guragai (Department of Accounting, Texas State University, San Marcos, USA)
Paul D. Hutchison (Department of Accounting, University of North Texas, Denton, USA)

Accounting Research Journal

ISSN: 1030-9616

Publication date: 27 September 2019



The purpose of this study is to examine the value of auditor attestation in internal control over financial reporting (ICFR) disclosures. The authors argue that internal control material weakness (ICMW) disclosures issued without auditor attestation by non-accelerated filers provide weaker signal to the impaired financial reporting quality compared to those issued with auditor attestation by accelerated filers.


This study investigates the differences in the association between ICMW disclosures and impaired financial reporting quality, as proxied by financial statement restatements, for accelerated and non-accelerated filers. The authors use propensity score matching to find control groups for both accelerated and non-accelerated filers.


The authors find that ICMW disclosures signal impaired financial reporting quality for both accelerated and non-accelerated filers, but such signaling is weaker for non-accelerated filers compared to accelerated filers.

Research limitations/implications

Although propensity score matching was used to match firms with and without ICMW disclosures, any unobservable fundamental differences between these groups may affect the results of this study.


This study shows that auditors’ involvement in the assessment of internal control effectiveness improves the signaling effect of ICMW disclosures on impaired financial reporting quality. As approved by the House Financial Services (HFS) Committee on November 4, 2009, non-accelerated filers are permanently exempt from auditor attestation requirement. This study provides some evidence that the exemption of non-accelerated filers from auditor attestation may have unintended consequences, and these results should be of interest to regulators and investors.



Guragai, B. and Hutchison, P. (2019), "Material weakness disclosures and restatements: value of external auditor attestation", Accounting Research Journal, Vol. 32 No. 3, pp. 362-380.

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