Direct and Indirect Effects of Internal Control Weaknesses on Accrual Quality: Evidence from a Unique Canadian Regulatory Setting*

Abstract

In this study we examine the effectiveness of a unique Canadian disclosure approach regarding the adequacy of a firm’s internal control over financial reporting (ICOFR). According to this approach, the disclosures of internal control design weaknesses are contained in the ‘‘Management Discussion and Analysis’’ (MDA Kinney and Shepardson 2010). Since 2007, even nonaccelerated filers have had to report under SOX 404 Part (a) which requires separate management certification of the results of an assessment of internal control design and implementation effectiveness. Further, it appears that