Skill is power: does the executive’s IT background affect the audit opinion?

Promoting structural deleveraging is a key strategy for China to reduce high debt levels and mitigate systemic financial risks. In this context, the deleveraging of state-owned enterprises (SOEs) has become a national strategic priority. This study explores whether enhancing the quality of internal control as an internal governance mechanism can facilitate the deleveraging process of SOEs. Using a sample of A-share state-owned listed companies from the Shanghai and Shenzhen stock exchanges (2009–2023) and based on resource-based theory and signaling theory, we examine the impact and mechanisms through which internal control quality influences SOE leverage reduction. Our results demonstrate that higher internal control quality significantly promotes deleveraging in SOEs, and these findings remain robust after conducting endogeneity tests and employing alternative model specifications. Improved internal control mitigates resource misallocation and encourages firms to adopt two primary strategies: debt reduction (through short-term liability repayment and retained earnings) and equity expansion. However, the positive effect diminishes as Research and Development (R&D) intensity increases, reflecting the trade-off between innovation-driven growth and financial stability. Further heterogeneity analyses reveal that the deleveraging effect is more pronounced in local SOEs and over-indebted SOEs, as enhanced internal control helps eliminate non-performing liabilities. This study contributes to the literature on the economic consequences of internal control and provides empirical insights for policymakers seeking to optimize the capital structures of SOEs.

PurposeThis study aims to determine the impact of corporate digital transformation on the audit opinions of auditors in A-share nonfinancial listed companies in China. It also examines how corporate internal control and corporate social responsibility (CSR) disclosure levels moderate this effect. This study fills a gap in the literature by investigating the impact of digital transformation on business performance, especially in the Chinese context, where digital transformation is rapidly progressing. This study also offers practical guidance for practitioners on whether and how to undergo a digital transformation and enhance their internal governance and social responsibility practices.Design/methodology/approachThis study uses a sample of 2,637 Chinese A-share nonfinancial listed companies from 2009–2022, after excluding firms with ST, ST* or PT status; negative revenue; and missing data for three or more consecutive years. Digital transformation index data is collected from firms’ annual reports, and the other microlevel data from the Wind and CSMAR databases. The authors winsorize the data at 1% for outliers, resulting in 17,305 firm-year observations. This study uses fixed-effects logistic regression with clustered robust standard errors to analyze the binary dependent variable. This study also performs various robustness checks, such as probit model, multilevel fixed effects model and IV 2SLS estimations, to confirm the validity of the results.FindingsThis study reveals that digital transformation leads to standard unqualified audit opinions, meaning that companies that invest more in digital technologies and capabilities has more tendency to receive standard unqualified audit opinions, which signify the reliability and credibility of their financial reporting. This study also finds that corporate internal control and CSR disclosure levels positively moderate the effect of digital transformation on audit opinions. This study further conducts heterogeneity analysis and shows that the positive effect is originated by the state-owned enterprises, firms audited by non-Big4 auditing firms, firms with high internal control levels and firms with low CSR disclosure levels. The results are robust to different econometric methods.Originality/valueThis study contributes to the literature by providing empirical evidence on how digital transformation influences audit quality and credibility and how internal governance and social responsibility practices strengthen this influence. This study also has practical implications for practitioners by providing advice on whether and how to pursue a digital transformation and improve their internal governance and social responsibility practices. This study demonstrates its originality by reviewing the existing literature from three theoretical perspectives: stakeholder, signaling and reputation, and identifying the research gap that the study addresses. This study also compares its findings with previous studies and discusses the implications and limitations of its research. This study also proposes directions for future research based on its findings.

The effect of auditor IT expertise on internal controls

This paper examines the impact of pay gap on the quality of the internal control. Using state-owned enterprises listed in China from 2012 to 2019 as samples, we find new evidence of an inverted U-shaped relationship between the pay gap and internal control quality, which includes the executives’ internal pay gap, external pay gap, and executives-employees pay gap. Furthermore, we also find that there is an inverted U-shaped relationship between the pay gap and the internal control quality in state-owned enterprises with commercial competition, but we don’t find similar results for the samples of state-owned enterprises with specific functions. In addition, we provide evidence that the pay gap not only has a direct impact on internal control quality but also has an indirect impact on internal control quality through agency costs. This study supplements research on internal control quality from the perspective of incentives.

Does internal control quality improve earnings persistence? Evidence from China's a-share market

The transportation industry occupies a vital social role in supporting the national economy. Therefore, it is of great importance to strengthen the prevention and control of operating risk in the related enterprises, so as to improve their sustainability capacity. In this paper, the authors use empirical data from the listed companies in the transportation industry as research samples. Taking into account the state-owned property rights, the authors comprehensively analyze the effect of internal control quality on the transportation enterprises’ sustainability capacity. The authors find out that: (1) Internal control quality can have a significantly positive influence on enterprise sustainability; (2) Compared to the local state-owned enterprises, the internal control quality in central state-owned enterprises will be more conducive to improve sustainability. The findings are of great value as references to improve the internal quality control of transportation enterprises, and to realize the synchronous development of sustainability in both local state-owned enterprises and central state-owned enterprises.

ISO 22870 standards require protocols for performance of internal quality control for all point-of-care testing devices and training of users in its theory and practice. However, the unique setting of point-of-care testing (i.e. processes conducted by non-scientific users) means that laboratory internal quality control programmes do not easily translate to point-of-care testing. In addition, while the evidence base for internal quality control within the laboratory has been increasing, the equivalent literature surrounding point-of-care testing is very limited. This has led to wide variation in what is considered acceptable practice for internal quality control at the point of care. Indeed, it has been demonstrated that internal quality control is an area of deficiency in point-of-care testing. Internal quality control protocols used at point-of-care testing should be defined based on risk management. The protocol will therefore be dependent on analyser complexity and availability of inbuilt system checks, the risk associated with release of an incorrect patient result as well as frequency of use. The emphasis should be on designing an effective internal quality control protocol as opposed to the inherent tendency of introducing high-frequency quality control. Typically a simple pass or fail criterion is used for internal quality control in point-of-care testing based on whether internal quality control results fall within assigned ranges. While simply taught, such criteria can require broad internal quality control ranges to decrease the probability of false rejection (also reducing the probability of error detection). Customized internal quality control ranges, two-tier acceptance systems and assay-specific internal quality control can be used to improve error detection rates.

BackgroundWomen’s mobile health (m-health) applications are currently widely used for health education, medication, prevention of illness, etcetera. However, women are extremely sensitive to their design. While the number of m-health applications for women is increasing, many are of poor quality and have development issues.ObjectiveThis paper aims to develop and evaluate an m-health application for Thai women based on a user-centred design (UCD). Current women’s m-health applications were investigated to identify any lack of development in usability, functionality and graphical user interface. The results were evaluated and used to create criteria for the trial of a prototype application.MethodsUCD methodology was used to design a graphical user interface, analyse the application’s functionality, and enhance its usability. Data from thirty female end-users were collected and maintained locally, and thirteen information technology (IT) experts provided feedback on the prototype trial. Interviews and questionnaires were used to gather user data and identify problems.ResultsThe average scores of the evaluation by the end-users (n = 30) and IT experts (n = 13) were compared using a t-test statistical analysis. For the first version, the end-users gave higher usability scores (average = 4.440), with no statistical significance and a P value of 0.05. In comparison, lower scores for functionality were given by the IT experts (average = 4.034), with no statistical significance and a P value of 0.05. For the second version, the average scores from the end-users were higher than those from the IT experts. The highest score was related to usability (average = 4.494), with no statistical significance and a P value of 0.05. The lowest score was for the user interface from the group of IT experts (average = 4.084), with no statistical significance and a P value of 0.05.ConclusionA UCD was utilised to construct a process taxonomy to understand, analyse, design and develop an application suitable for Thai women. It was found from an evaluation of the currently-available women’s m-health applications that usability is their main weakness; therefore, this aspect needed to be prioritised in the new design. According to the results, IT experts’ perspective of the development of an m-health application was different from that of end-users. Hence, it was evident that both end-users and IT experts needed to be involved in helping developers to analyse, prioritise and establish a strategy for developing an m-health application, particularly one for women’s health. This would give researchers an in-depth understanding of the end-users’ expectations.

PurposeIn the context of an evolving digital-based global economy, this study aims to investige the impact of digital transformation (DT) on a firm’s internal control (IC) quality. It also explores how the personal traits of (CEOs) – such as age, gender and educational background – intersect with DT to shape the IC quality in various types of state-owned enterprises (SOEs).Design/methodology/approachThe study uses the data from China A-shares non-financial enterprises, listed on Shanghai and Shenzhen stock exchanges between 2007 and 2020. Using the fixed effect regression method alongside various statistical techniques, such as propensity score matching, alternative analysis and instrumental variables analysis, yields robust findings. These methods effectively address issues related to functional form misspecification and potential biases from omitted explanatory variables.FindingsThe findings reveal a positive impact of DT on firm IC quality, and this impact is more pronounced in firms when the CEO is female, young and possesses a higher level of education. Notably, the study also distinguishes between central and local state-owned enterprises (SOEs), highlighting that DT has a greater influence on IC quality in central SOEs, where CEOs often have higher political ranks and closer to government monitoring. Overall, the findings are robust and consist to alternative variable and other statistical methods.Research limitations/implicationsFollowing are the significant implications for both academia and business. First, firms that effectively adopt DT to enhance IC not only gain a strategic advantage over competitors but also establish efficient risk management practices and a robust IC system. Second, better IC resulting from DT can enhance investor and stakeholder confidence. This is particularly important for publicly traded companies, where investors and analysts closely scrutinize the robustness of IC systems. Third, DT could result in cost savings over time, as automation and streamlined processes may reduce the need for manual efforts and resource-intensive tasks associated with IC.Originality/valueThe findings are contributed to the literature in multiple ways. It enhances our comprehension of the intricate DT-IC quality relationship, and provides valuable insights into the transformative impact of DT on organizational operations and risk management. It also introduces a novel perspective by investigating how CEOs personal traits intersect with DT to shape IC quality, contributing to upper echelons theory. Furthermore, it expands the discussions on firm ownership by considering the types of SOEs (central vs. local), in the DT-IC quality context.

The report of the 20th Party Congress emphasizes the importance of "attracting talents" and the importance of introducing high-quality talents. The relationship between returnee executives, as the key target of talent introduction, and the significance of internal control in enterprises has been little studied in the literature, and the relationship between the two needs to be further explored as internal control has reached a critical stage in China. This paper selects data of A-share listed companies in Shanghai and Shenzhen from 2011-2021, and explains the relationship between overseas experience of executives and the quality of internal control of enterprises using theories such as branding theory and principal-agent theory, and finds that: overseas experience of executives is significantly and positively related to the quality of internal control of enterprises, and the quality of internal control of enterprises can be improved through two paths: "accelerating the digital transformation of enterprises and suppressing financing constraints". The study found that the overseas experience of executives is significantly and positively related to the quality of internal control, and the quality of internal control can be improved through two paths: "accelerating the digital transformation of enterprises and curbing financing constraints. Further study finds that the effect of returnee executives on internal control quality is more pronounced in state-owned, highly competitive and larger enterprises. This paper enriches the literature on returnee executives and internal control, and inspires companies to pay attention to the overseas experience of executives in order to improve the quality of internal control and respond to the national strategy of "strengthening the country with talents".

Digital transformation has become a new engine driving the development of enterprises. Based on the data of Chinese A-share listed manufacturing enterprises from 2008 to 2020, this paper measured the intensity of enterprise digital transformation with the help of machine learning method, and empirically investigated the impact mechanism of digital transformation on the quality of enterprise's internal control. It is found that digital transformation can significantly improve the quality of internal control. Mechanism analysis shows that digital transformation has a positive impact on the quality of internal control mainly by reducing agency costs and increasing the shareholding ratio of institutional investors. The results of heterogeneity analysis indicate that the promotion effect of digital transformation on the quality of internal control is more significant in enterprises with small scale and strong manager's ability. Digitization improves the total factor productivity of enterprises by promoting the quality of internal control.

INTRODUCTION In a sense, I began developing this presentation in 1993 when I first taught auditing and internal control for M.B.A.s at INSEAD (European Institute of Administration). In designing the course, I envisioned myself as the CEO of a multinational corporation (as many M.B.A.s view themselves), and asked how would I know whether I was getting the right information for decision making, that my assets were being protected, and that my people were complying with laws, regulations, and company policy--all on a worldwide basis? As I pondered these questions, it came to me that an answer to all of them is internal control. This revelation changed my thinking about internal control, changed the tone of the M.B.A. course, and also changed my teaching for majors,(1) I now believe that knowledge about internal control is an essential element that affects the welfare of management, corporate directors, shareholders, trading partners of an entity, auditors, and society at large--yet it is relatively unexplored by researchers. All major research methods are applicable, we have conceptual documents to guide our inquiries, and internal control quality is regulated directly or indirectly in many countries. In short, there is an outstanding opportunity for research in internal control for and auditing professors, and for Ph.D. students. There are substantial barriers, of course, and we must all work to overcome them. The rest of this paper explores research opportunities in internal control quality assurance beginning with a definition of internal control and the demand for internal control quality and quality assurance. This is followed by a discussion of barriers to research, and concludes with research questions and trends for the future. DEMAND FOR INTERNAL CONTROL QUALITY AND QUALITY ASSURANCE Because I am most familiar with them and because other groups around the world have conceptually similar definitions, I will use the Committee of Sponsoring Organizations of the Treadway Commission definition of internal control (COSO 1992) supplemented by that of Criteria of Control (CoCo, CICA 1995).(2) COSO defines internal control as: a process, effected by an entity's board of directors, management and other personnel designed to provide reasonable assurance regarding the achievement of objectives in the following categories: * effectiveness and efficiency of operations * reliability of financial information * compliance with the applicable laws and regulations (COSO 1992) (emphasis added) The COSO definition implicitly assumes a constant external environment. The Canadians' CoCo adds the risk of failure to maintain the organization's capacity to identify and exploit opportunities, and resilience or capacity to respond or adapt to unexpected risks and opportunities. Thus, CoCo assumes the external environment may change, and defines good internal control to include adaptability of the process to a changing external environment. The COSO/CoCo definitions have three distinguishing features. First, they are broad, much broader than traditional definitions of internal accounting control that are limited to reliability of data and protection of tangible assets. By including the efficiency and effectiveness of operations, compliance with laws and regulations, and responsiveness to external changes, the COSO/CoCo definitions can be interpreted to cover all of management's functions except choosing objectives, strategies to achieve objectives, and follow up of surprises identified. Second, the COSO/ CoCo definitions are about process, rather than about a static state. This means that internal control cannot be directly observed or verified. Third, internal control is about risk, or threats that an entity will not achieve its objectives. All decision makers want to optimize their risk/expected reward trade-off, thus leading to demand for internal control quality and quality assurance. …

This study aims to analyze the relationship between macro fundamental analysis, company characteristics, and company performance with capital structure, ownership structure, and audit opinion as intervening variables in textile and garment companies. The textile and garment industry faces various challenges such as global competition, fluctuations in raw material prices, and changing consumer preferences. Industry and company analysis is important to understand the company's performance. Factors such as company size, leverage, and profitability can affect a company's performance. The ownership and capital structure also plays an important role. Audit opinions can improve investor confidence and company performance. This research can help textile and garment companies make better decisions to improve their performance. This study examines the relationship between macro fundamental variables, company characteristics, ownership structure, audit opinion, and company performance. The results showed that only three of the eleven hypotheses proposed were accepted, with the finding that the characteristics of the company had a significant influence on the company's performance. This research was conducted using a quantitative method using secondary data from textile and garment companies on the Indonesia Stock Exchange for the 2018-2022 period. Testing shows that the Ownership Structure has a significant influence on the company's performance, while the Capital Structure has no significant influence. This study supports previous findings and rejects other different studies. The references used in this study cover a wide range of topics related to corporate finance and management.

This study examines the relationship between environmental, social, and governance (ESG) practices, financial reporting quality, and ownership structure in Chinese listed companies, based on a panel dataset of 1841 firm-year observations from 2016 to 2020. Using three types of panel regression analyses, the study finds a positive relationship between ESG performance and financial reporting quality. Notably, this positive relationship between ESG performance and financial reporting quality is evident only for state-owned enterprises (SOEs), while no significant relationship is observed for private firms (non-SOEs). When ESG is disaggregated into its sub-dimensions, environmental performance shows a positive relationship with financial reporting quality in SOEs, while no significant relationship is found for social and governance performance. This study contributes to the literature by providing empirical evidence on the relationship between ESG practices and financial reporting quality, with a focus on the role of ownership structure in shaping this relationship in an emerging market with government-led sustainability initiatives. The findings reveal significant differences in the integration of ESG considerations into financial reporting based on ownership structure, highlighting the prominent role of SOEs in promoting sustainable business practices and enhancing financial transparency.

Internal control deficiencies and the issuance of going concern opinions