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In preparing company financial statements, management is required to evaluate internal controls and disclose any material weaknesses in the internal control over financial reporting (ICFR) report. This study aims to examine how the tone of the details management provides to describe a material weakness in its ICFR report impacts investors’ perceptions of the severity of the material weakness and the desirability of the company as a potential investment.

This study uses an experimental design that manipulates whether the company’s ICFR report includes a negatively-toned detail to describe a material weakness disclosed in the report. Participants read the report and answer questions concerning their perceptions of the desirability of the company as an investment and the severity of the material weakness.

This study finds that using negatively-toned details to describe a material weakness, as opposed to an absence of those details, decreases investment desirability due to an increase in the perceived severity and number of distinct problems in ICFR.

This study extends prior research by showing that the tone of details used to describe a material weakness, not just the quantity of details, impacts investors’ decision-making. This study shows that management can carefully construct their ICFR report to avoid tone and potentially mitigate the negative effect of disclosing ineffective ICFR.

The purpose of this paper is to establish the relationship between corporate governance, ethical culture, Internal Controls over Financial Reporting (ICFR) and compliance with International Financial Reporting Standards (IFRS) by microfinance institutions (MFIs).

This is a cross-sectional survey based on a sample of 85 MFIs in Uganda. Hypotheses were tested using partial least squares (PLS) analysis technique. An unweighed IFRS compliance index to capture the level of compliance with IFRS was constructed. Yet to capture corporate governance, ethical culture and ICFR variables, the perceptions of top management of MFIs have been taken into consideration.

Corporate governance, ethical culture and ICFR, each makes a significant contribution to compliance with IFRS. Also both corporate governance and ethical culture are significantly associated with ICFR. However, compliance with IFRS by MFIs is better enhanced by corporate governance and ethical culture through ICFR.

Results support the idea that in terms of agency and virtue ethics theories, the board should support ICFR to minimize egocentric managers and other employees and also inculcate an ethical culture to achieve better compliance with IFRS because corporate governance and ethical culture are associated with sound ICFR which in turn lead to compliance with IFRS.

Boards of MFIs should encourage investments that improve ICFR. At the same time, regulators should ensure that boards are composed of members with financial expertise, with no conflict of interest and introduce mechanisms that encourage boards to perform their roles.

The study contributes towards a methodological position by showing that the behavioural perspective of corporate governance can be an alternative to the boards’ structural variables in investigating compliance with IFRS. A direct association of ethical culture and compliance with IFRS and an indirect association through ICFR can be envisaged.

The purpose of this paper is to investigate the relationship between corporate governance and internal controls over financial reporting (ICFR) of microfinance institutions (MFIs) in Uganda.

This study was cross-sectional and correlational. In all, 70 Ugandan MFIs were surveyed and the data were analyzed using SPSS Version 20 to test the nine hypotheses which were put forward. The hypothesized relationships were tested using the ordinary least squares regression.

The findings based on multiple regression analysis suggest that board role performance, expertise and Association of Microfinance Institutions in Uganda (AMFIU) membership are significant predictors of the ICFR. However, board independence and separation of CEO and chairman roles are not significant predictors. The results also show that the firm-specific control variables (auditor type, size, accounting qualification and age) are also not significant.

This study has limitations in that it is cross-sectional, thus limiting monitoring changes in behavior over time and also because the effectiveness of the ICFR was assessed using perceptions.

Efforts by regulators and other stakeholders to improve the ICFR must focus on the corporate governance aspects such as board expertise and ensure that the board performs its roles.

The paper adds to the existing literature on the corporate governance and ICFR by documenting the relationship between the corporate governance and ICFR. The study complements the previous studies on the ICFR by demonstrating that board expertise and board role performance improve the ICFR. Such evidence does not currently exist. The findings also indicate that an MFI which is a member of AMFIU was found to have better ICFR supporting self-regulation.

Recent studies have concluded that auditors underreport existing internal control over financial reporting (ICFR) weaknesses. This study aims to assess how effective external auditors are, as independent third parties, at disclosing reliable opinions to the public on the ICFR.

Using a logistic regression, the authors analyzed a sample of 106 US companies classified as large accelerated filers or accelerated filers consisting in 53 companies which restated their financial statements and a control group of 53 companies having “clean financial statements” at any given moment during the research period, between 2005 and 2018.

The results indicate that only 34% of companies with financial statements deemed unreliable have received an adverse ICFR opinion issued by the external auditor during the misrepresentation period or its prior year. The authors also notice that external auditors are somewhat effective in identifying and disclosing red flags to the public that certain companies have internal control (IC) material weaknesses. The results also indicate that the average presence of an adverse IC opinion issued by the external auditor during the misrepresentation period or its prior year for companies with unreliable financial statements is higher than for companies with financial statements deemed reliable.

This study tests if an increase in efforts and disbursements with audit fees are justifiable by external auditors’ issuing effective, reliable opinions and reinforcing a more transparent and ethical capital markets environment, that is, an environment where accurate information is available for stakeholders. If external auditors are negligent in providing a qualitative and independent opinion to stakeholders, the increase of disbursements made with audit fees is less justifiable. Thus, the research has practical implication for auditors as well as standard setters.

This study extends the literature on ICFR by empirically testing whether the public can rely on external auditors’ opinions expressed on Sarbanes–Oxley Section 404 reports.

This study aims to identify characteristics of firms reporting multiple years of material weaknesses in internal control over financial reporting (MWICFR), labeled “Repeat Offenders”, and examine their characteristics and the types of material weaknesses they report using both broad and COSO-based classification schemes. The analysis compares these firms with firms reporting only one year of MWICFR and examines the differences between Repeat Offenders reporting consecutive and non-consecutive weaknesses.

Univariate and multivariate analyses were conducted on a sample of 1,793 firm-year observations, split into Repeat Offenders and non-Repeat Offenders, and collected from AuditAnalytics and Compustat from 2007 to 2015.

On average, 40% of adverse opinions in ICFR each year can be attributed to Repeat Offenders. Compared to one-time MWICFR firms, Repeat Offenders are significantly more likely to report general material weaknesses and, within the COSO framework, are significantly more likely to report issues with Segregation of Duties and Processes and Procedures. Repeat Offenders reporting consecutive years of MWICFR are significantly more likely to have general weaknesses than non-consecutive Repeat Offenders and are also significantly more likely to report issues with Segregation of Duties and Personnel.

Prior studies have examined unremediated ICFR issues in the periods immediately following SOX implementation. This study extends this literature with a longer, more current sample period, focusing on both broad and COSO-specific control issues, as well as examining consecutive and non-consecutive MWICFR and firms with more than two years of MWICFR.

This study underpins recent Securities and Exchange Commission and Public Company Accounting Oversight Board concerns regarding pervasive ICFR issues. This study identifies some of the characteristics of firms associated with weaker ICFR and pinpoints more specific areas within internal controls that frequently lead to adverse opinions.

The purpose of this paper is to analyze how the COBIT framework, integrated within the internal control framework, enables improvement in the quality of financial reporting while helping to reduce or eliminate the material weaknesses (MWs) of internal control over financial reporting (ICFR). The Control Objectives for Information and Related Technology (COBIT) model is a framework for information technology (IT) management and IT governance. It is a supporting toolset that allows managers to bridge the gap between control requirements, technical issues and business risks. Preliminarily, the analysis in this paper illustrates how the Committee of Sponsoring Organizations (COSO) framework impacts on the MWs, highlighting strengths and weaknesses. This paper shows how these limits can be overcome with the use of the COBIT framework.

This is a conceptual paper that aims to highlight the relationship between COBIT and COSO, by illustrating how the IT processes reduce or eliminate the main MW categories.

The analysis indicates that the implementation of the COBIT framework, or more generally the adoption of effective IT controls, provides important benefits to the entire company or organization. IT control objectives have a direct impact on the IT control weaknesses and indirectly on the other categories of material weaknesses.

The adoption of the framework allows managers to implement effective ICFR. In particular, the COBIT approach provides managers with a more evolved tool in terms of compliance with the Sarbanes–Oxley Act requirements. This framework also improves the reliability of financial reporting in relation to the requirements of Public Company Accounting Oversight Board’s Auditing Standards No. 2 and 5.

The analysis provides an interdisciplinary approach, connecting accounting and information systems themes, and suggest solutions and tools than can help managers to address the internal control weaknesses. This paper addresses an area of relevance to both practitioners and academics and expands existing accounting literature.

This study aims to investigate the effect of high insider ownership on firms’ internal controls over financial reporting. In particular, it examines how high insider ownership affects the likelihood of an adverse Sarbanes–Oxley Act Section (SOX Section 404) opinion and its subsequent remediation.

Tests of hypotheses use ineffective controls and remediation models. The initial tests in this study use ineffective internal controls over financial reporting probit regression models to investigate how high insider ownership affects the ex-post likelihood of an adverse 404 opinion. Two remediation models – a multinominal probit regression and probit regression model – are used to investigate the effect of high insider ownership on the likelihood of successfully remediating an adverse 404 opinion.

Results show that while the ex-ante likelihood of an adverse SOX Section 404 auditor’s internal control opinion increases with high insider ownership, high insider ownership firms are more likely to remediate ineffective 404 controls. This study rationalizes these diverse findings by asserting that prior to an adverse 404 opinion, entrenched managers avoid internal control financial reporting oversight and monitoring. After an adverse opinion, however, and within the context of an imminent and explicit value reducing 404 opinion, powerful high insider owner managers are motivated to remedy ineffective controls.

This research synthesizes existing streams of literature on insider ownership and the effectiveness of internal control over financial reporting quality to provide new information on the effects of high insider ownership on firms’ internal controls.

Section 404 of the Sarbanes‐Oxley Act (SOX) of 2002 required companies to report on the effectiveness of their internal controls over financial reporting. Auditors also must attest to, and report on, the assessment of the effectiveness of internal control over financial reporting made by the management of the company being audited. The purpose of this paper is to provide analyses of audit fee costs and material weaknesses reported for companies of different sizes after the effective date of Section 404 and suggest approaches to reduce SOX 404 compliance costs.

Quantitative analysis and deductive reasoning are used to evaluate audit costs associated with Section 404.

Audit fees have been increased substantially, particularly during the first year a company complied with Section 404, and have not been dropped substantially after the first year of compliance. Companies with sales of less than $1 billion reported significantly more material weaknesses than larger companies.

This paper documents audit costs after the SOX Section 404 effective date, the typical types of material weaknesses reported, the proportion of companies of different sizes reporting material weaknesses, and describes approaches to reduce compliance costs.

This study’s purpose is to examine whether providing prior consulting services influences internal auditors’ subsequent assessments when providing assurance services to assist management in its assessment of internal control over financial reporting. A behavioral experiment is used, with internal auditors as participants. We provide some evidence that internal auditors who perform prior consulting services are less likely than others to conclude that an identified control deficiency is a material weakness, but only when the deficiency is directly related to the prior consulting services performed. Limitations include relatively small sample sizes and manipulation check failure rates that, although consistent with several prior studies, are somewhat high. If internal auditors have provided consulting services, they may want to consider limiting the assurance services provided to management that are more directly related to their consulting services. While prior studies have examined the effects of internal auditors’ role in designing internal controls on subsequent services, this is the first study to focus on the impact of providing internal audit consulting services on subsequent assurance services.

For the past 10 years, the Public Company Accounting Oversight Board (PCAOB) has operated as an independent overseer of public company audits. Over 70 percent of PCAOB studies have been published since 2010, evidencing the increasing relevance of PCAOB-related research in recent years. Our paper reviews the existing literature on the PCAOB’s four primary functions – registration, standard-setting, inspections, and enforcement. In particular, we examine PCAOB registration trends and evaluate the effects of PCAOB registration requirements on the issuer audit market, as well as discuss the relative costs and benefits (e.g., auditor behavior changes, improvements in audit quality, auditor perceptions) of the 16 auditing standards the PCAOB passed in its first 10 years of operation. Further, we summarize the literature’s findings on the effects of the PCAOB inspection process on various facets of audit quality. Finally, we analyze the research concerning the PCAOB’s enforcement actions to determine how markets have responded to sanctions against auditors and audit firms. We contend that understanding and reviewing the effects of the PCAOB’s activities are important to future audit research because of the PCAOB’s authority over and oversight of the issuer audit profession. We also identify PCAOB-related research areas that have not been fully explored and propose several research questions intended to address these research areas.