Auditing Section Research Summaries Space

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  • Jennifer M Mueller-Phillips
    The Quality of Internal Control over Financial Reporting in...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 07.03 Reporting Material Weaknesses 
    Title:
    The Quality of Internal Control over Financial Reporting in Family Firms.
    Practical Implications:

    Family owners are motivated to maintain weaker internal controls in order to extract private benefits. The greater likelihood of material weaknesses is driven by family firms with dual-class shares. The study increases the understanding of the association between family firm status and the quality of internal controls over financial reporting. It also contributes to the extant literature on family firms by providing further insight into the mechanisms through which family firms can exert undue influence on internal control over financial reporting.

    Citation:

    Bardhan, I., Lin, S., & Wu, S. L. 2015. The Quality of Internal Control over Financial Reporting in Family Firms. Accounting Horizons 29 (1): 41-60.

  • Jennifer M Mueller-Phillips
    The Role of the Internal Audit Function in the Disclosure of...
    research summary posted March 4, 2015 by Jennifer M Mueller-Phillips, tagged 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 07.03 Reporting Material Weaknesses, 07.04 Assessing Remediation of Weaknesses 
    Title:
    The Role of the Internal Audit Function in the Disclosure of Material Weaknesses
    Practical Implications:

    Results indicate that the education level of IAF staff and the extent to which the IAF incorporates quality assurance techniques into fieldwork, audits activities related to financial reporting, and monitors the remediation of previously identified control problems are negatively associated with MW disclosures.

    The timing of Section 404 work and the nature of follow-up monitoring suggest that these aspects of IAF quality help prevent the existence of MWs. The IAF practices of grading audit engagements and coordinating with external auditors are both positively associated with MW disclosures. The positive relations suggest that these activities increase the effectiveness of Section 404 compliance processes and thereby increase the likelihood that extant MWs will be detected and disclosed. Together, this study’s results have important implications for managers responsible for determining IAF staffing and the structure of IAF activities, external auditors who perform Section 404 work, and standard-setters who provide Section 404 guidance. Moreover, the evidence that the IAF affects the financial reporting process lends support to the requirement that NYSE-listed companies maintain an internal audit function

    For more information on this study, please contact Shu Lin.

    Citation:

    Lin, S., M. Pizzini, M. Vargus, and I. R. Bardhan. 2011. The Role of the Internal Audit Function in the Disclosure of Material Weaknesses. The Accounting Review 86 (1): 287-323. 

  • Jennifer M Mueller-Phillips
    Trust and Financial Reporting Quality.
    research summary posted July 22, 2015 by Jennifer M Mueller-Phillips, tagged 07.0 Internal Control, 07.03 Reporting Material Weaknesses 
    Title:
    Trust and Financial Reporting Quality.
    Practical Implications:

    The authors provide evidence of a firm-level benefit of interpersonal trust. The findings have important practical implications that highlight the influence of firm culture on financial reporting. Whether by improving the decision making, facilitating the discovery and remediation of problems, or increasing the accuracy of the underlying information, a strong culture of trust may serve as an effective means of reducing the likelihood of costly financial reporting failures. This may be especially true for decentralized firms in which the aggregation of accurate information for financial reporting is particularly challenging. Managers may benefit from a better understanding of the level of trust within their firms. The findings suggest that trust is a potential correlate of FRQ that could be useful for stakeholders to monitor.

    Citation:

    Garrett, J., Hoitash, R., & Prawitt, D. F. 2014. Trust and Financial Reporting Quality. Journal Of Accounting Research 52 (5): 1087-1125. 

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