Effective Internal Control Research Articles

Internal control effectiveness and stock price crash

This study focuses on the problems of imperfect internal control effectiveness, insufficient information transparency, and plummeting stock prices. The study selects the data of non-financial main board listed companies in China’s Shanghai and Shenzhen A-shares from 2012 to 2021 as a sample, and adopts an empirical research methodology, which reveals that the effectiveness of internal control is negatively related to the trend of share price crash, and efficient internal control is positively related to the transparency of corporate information environment. The findings suggest the impact of internal control on the risk of stock price crash at the individual stock level and provide empirical support for listed companies to manage their risks. This study has practical value in guiding listed companies to strengthen internal control, improve information transparency, mitigate the risk of stock price crashes, and provide a decision-making basis for the healthy and stable development of the capital market.

Enhancing Financial Statement Quality: The Moderating Role Of Coercive Pressure In Government Entities

Purpose: This study aims to examine the effect of human resource competence, accounting information system quality, and internal control systems on the financial statement quality of central government accounting entities, with coercive pressure as a moderating variable. Methodology/approach: Primary data was collected from 118 central government work units through questionnaire distribution. The data was analyzed using the Partial Least Square (PLS) statistical technique to examine the relationships between variables. Findings: Human resource competence, accounting information system quality, and internal control systems are proven to be factors that can affect financial statement quality. Coercive pressure can strengthen the effect of accounting information system quality on financial statement quality, but it cannot strengthen or weaken the effect of human resource competence and internal control systems. Practical implications: Enhancing the competence of financial statement preparers, utilizing accounting information systems, and implementing effective internal control systems should be encouraged to improve the quality of central government financial statements. Coercive pressure must be responded to properly by utilizing the advantages of accounting information systems. Originality/value: The examination of coercive pressure in moderating the factors affecting the financial statement quality is the novelty of this study.

Implementasi Sistem Informasi Akuntansi Kredit Gadai Emas Di PT Pegadaian

This research was prepared to determine the procedures for granting, repaying, and auctioning gold pawn loans at PT Pegadaian (Persero) Tajur Branch Service Unit as one of the Fast and Secure Credit products offered by the company to the public to be able to obtain loans with collateral in the form of gold. The purpose of this writing is to find out about the Gold Pawn Credit Accounting Information System at PT Pegadaian and how the effectiveness of Internal Control on the Gold Pawn Information System at PT Pegadaian. The procedure for granting a gold pawn starts from a credit application, valuation of collateral, disbursement of credit loan funds, to storage of collateral, followed by settlement of the loan money within a maximum of four months by redemption, installments, or renewal. If the customer is unable to repay later, the collateral will be auctioned with the customer's consent based on the terms and conditions at the beginning of the credit loan process. Based on the results of the review, all of the above procedures have been carried out by the principles of good internal control, including standard procedures that are outlined in the form of flowcharts, there is a separation of duties made in the organizational structure and job descriptions, there are appraisers to overcome the risk of the insufficient value of collateral, there are adequate authorization procedures when granting credit and the auction process, there is verification of credit granting requirements, security of pawn deposits is very adequate, supported by a pawn application system and supporting documents to ensure the achievement of the objectives of granting credit with gold pawning. Keywords: Gold Pawn Credit Procedure, Internal Control, Accounting Information System

Blockchain technology and internal control effectiveness

This paper examines the effectiveness of the internal control mechanisms of blockchain-as-a-service (BaaS) providers. Given the lack of classification in the blockchain industry, we conduct text mining of official filings to identify BaaS providers and compare their internal control issues with those of matched firms in other industries. Our findings, which offer pivotal insights for policymakers and regulators, reveal that BaaS providers are 9.6 % more susceptible to internal control weaknesses compared to firms in other industries. This susceptibility results in an increased probability of financial restatements (3.4 %) and cybersecurity breaches (0.5 %). Furthermore, we show that BaaS providers invest 2.078 times more in audit services to address their internal control weaknesses. However, regulatory bodies have yet to prioritize internal control weaknesses in BaaS providers.

Arranging internal financial control in public institutions: Obstacles and strategies to mitigate them

Subject. This article discusses the issues of arranging effective internal financial control in government institutions of the Russian Federation. Objectives. The article aims to identify the key problems of arranging internal control in government institutions and develop recommendations for its improvement. Methods. For the study, I used the methods of comprehensive and statistical analyses, and comparison. Results. The article finds that preliminary control has significant advantages in preventing budget violations. An analysis of the performance indicators of institutions demonstrates the availability of reserves for improving the quality of internal control. Conclusions. Based on the results of a comprehensive study, the article concludes that it is necessary to solve a number of problems in the field of personnel, technological and methodological support for arranging an effective system of internal financial control in public institutions. The implementation of the proposed measures will contribute to improving the effectiveness of the use of budget funds.

The Role of Internal Control Disclosure in Financial Reporting Precision and the Quality of Audited Financial Reports

We study the impact of internal control disclosure in a model in which a client company privately invests corporate resources in its internal control system that subsequently determines its financial reporting precision. Without internal control disclosure, the capital market cannot observe the precision and must price the client value based on its conjecture. With internal control disclosure requirements, the effectiveness of internal controls is disclosed, which reveals the precision to the market. Thus, internal control disclosure provides the client with another channel to influence the market pricing. Contrary to the conventional wisdom, we find that the client tends to invest less in its internal control system with disclosure requirements. As a result of lower precision, internal control disclosure may lower the informativeness of audited financial reports, albeit ex-post communicating more information to the market. We also find that internal control disclosure reduces the client’s ex-ante payoff when the auditor bears a high misstatement cost due to audit failure. JEL Classification: M41, M48

The Role of Auditors in Fraud Prevention and Detection in Companies

The role of auditors in fraud prevention and detection in companies is a critical aspect of corporate governance and financial integrity. Auditors, often external to the company, are responsible for reviewing financial records, internal controls, and operational processes to ensure accuracy, transparency, and compliance with regulatory standards. Fraud poses a significant threat to businesses, ranging from financial misstatements to cyber fraud. Auditors play a crucial role in identifying and preventing such fraudulent activities by applying their expertise in accounting principles, risk assessment, and forensic analysis. In their role, auditors are tasked with assessing a company's financial statements and internal controls to detect any signs of fraud or mismanagement. They conduct thorough examinations of financial records and transactions, looking for irregularities or inconsistencies that may indicate potential fraud. Auditors also evaluate the effectiveness of internal controls designed to prevent and detect fraud, assessing their design and implementation. Moreover, auditors often employ specialized techniques like data analytics and forensic accounting to identify patterns of suspicious activities or potential fraud schemes. By analyzing large datasets and transaction records, auditors can uncover anomalies that might otherwise go unnoticed. In addition to detecting fraud, auditors also contribute to its prevention by recommending improvements to internal controls and processes. They provide valuable insights and recommendations to management and stakeholders on how to strengthen governance practices and reduce the risk of fraud occurring within the organization. Overall, auditors play a critical role in safeguarding the integrity of financial reporting and maintaining trust in corporate operations. Their expertise and independence are essential in ensuring transparency and accountability in the face of evolving fraud risks and regulatory challenges.

The Effect of Operational Audit and Internal Control on Raw Material Inventory Management

Economic developments in this era are in line with world developments which give rise to competition between companies and require company management to make the best decisions. The aim of this research is to analyze how much influence operational audits and internal control have on raw material inventory management. In this research, a quantitative method was applied where data was collected using a questionnaire, which was then processed using the SPSS data analysis tool. The research target was employees who worked at the house property company at PT Baritana Indah Persada Medan, with a total sample of 60 respondents. The data analysis methods applied in this research include descriptive statistics, classical assumption analysis, multiple linear regression, classical assumption analysis, hypothesis testing and coefficient of determination. The findings of this research reveal that there is a significant relationship between raw material inventory management and operational audits and internal controls to smooth the company's operations well.

Factors Influencing the Effectiveness of Internal Control in Joint Stock Commercial Banks in Thai Nguyen Province

Purpose: This research explores the factors influencing the effectiveness of internal control in joint stock commercial banks in Thai Nguyen province. Design/Methodology/Approach: Adopting a cross-sectional quantitative design, the study employed a bilingual questionnaire. It facilitated data collection via an offline in-person and online platform from a diverse set of professional respondents in Vietnam. The analysis utilized regression in SPSS, applied to a robust dataset of 230 valid observations, ensuring a representative understanding of the research phenomena within the unique sociocultural context. Findings: This research revealed a significant positive relationship between Control Activities (CA), Control Environment (CE), Information and Communication (I&C), Monitoring (MO), Risk Assessment (RA), Group benefit (GB), Goverment support (GOS) and the effectiveness of Internal Control (EIC). Research Limitations/Implications: Despite the rich insights, the study has limitations that future research can address. For instance, the study employed a cross-sectional design, limiting its ability to capture changes over time. Moreover, the research context was limited to Thainguyen a province in VIetnam, suggesting additional studies were needed in other cultural and economic contexts. Practical Implications: The study provides actionable insights for bank to enhance the effectiveness of Internal Control. Originality/Value: This study significantly contributes to the literature by exploring the intricate relationships among CA, CE, I&C, MO, RA, GB, GOS and EIC in an emerging economy context, providing a nuanced understanding of these dynamics.

The Influence Of Independence, Professionalism, Individual Morality And The Effectiveness Of Internal Control On Fraud Detection

Purpose – This study aims to examine and analyze the impact of independence, professionalism, individual morality, and internal control effectiveness on fraud detection. Methodology/approach – The research method employed in this study is purposive sampling. It adopts a quantitative approach. The data analysis method used in this research includes testing data quality, testing classical assumptions, testing the structural model using multiple linear regression, and hypothesis testing using IBM SPSS 22. Result – the results of the research show that (1) independence has a positive and significant effect on fraud detection, (2) professionalism has a positive and significant effect on fraud detection, (3) individual morality has no positive and insignificant effect on fraud detection, and (4) control internal has a significant positive effect on fraud detection. Keywords: Independence, Professionalism, Individual Morality, The Effectiveness Of Internal Control On Fraud Detection.

On the assessment of the effectiveness of internal financial control in State-owned (municipal) institutions

Subject. This article discusses the issues of assessing the effectiveness of control activities and systematizing the criteria for assessing the effectiveness for a specific type of control in order to improve and adapt it to changing conditions. Objectives. The article aims to specify the composition and content of the criteria for assessing the effectiveness of internal financial control implemented by State-owned (municipal) institutions. Methods. For the study, I used the methods of analysis, grouping, comparison, and generalization. Results. Based on the analysis of the content of regulatory legal acts affecting various aspects of the effectiveness of control, the article systematizes approaches to assessing the effectiveness of control activities, specifies the composition and content of the criteria for assessing the effectiveness of internal financial control implemented by State-owned (municipal) institutions, and highlights the distinctive characteristics of the criteria for assessing the effectiveness of external and internal financial control. Conclusions. The article concludes that it is necessary to analyze an expanded set of criteria for assessing the effectiveness of internal financial control and focuses on the fact that when assessing the effectiveness of internal financial control, it is important to take into account the stages of the life cycle of control activities.

Management risk appetite, internal control and corporate financialization

This paper examines the impact of management risk appetite on corporate financialization among non-financial firms listed on the Chinese A-share market over the period 2009–2021. The empirical analysis shows that there is a significant positive relationship between management risk appetite and corporate financialization. In addition, the moderation effect results highlight that firms' internal controls play a negative moderating role between management risk appetite and financialization. These findings have far-reaching implications for regulators, standard setters and corporate governance bodies, as they highlight the need for effective internal control systems to ensure financial stability.

SUCCESS FACTORS IN THE ACCOUNTING INFORMATION QUALITY (SURVEY AT PT. PRIVATE PLANTATION IN PALEMBANG CITY)

This study aims to determine and partially analyze the effect of internal control, data quality, and accounting information system quality on accounting information quality. Data testing is about validity and reliability. Data analysis techniques include descriptive and inferential statistics. Based on the number of questionnaires returned and processed, as many as 33 respondents showed that all of them were valid and reliable. Descriptive statistical analysis per variable shows the dominant value is very high. The results of inferential statistics show that the results of residual values are normally distributed; multicollinearity and heteroskedasticity do not occur. Multiple linear regression tests show that if internal control variables, data quality, and accounting information system quality are considered constant, then the quality of accounting information will increase. The results of research on the t test show that partially internal control, data quality, and accounting information system quality affect accounting information quality. Keywords : Success Factors, Accounting Information Quality.

The influence of human resource competency, utilization of information technology, and understanding of financial accounting standards on the quality of financial reports with an internal control system as an intervening variable at the GMAHK Head Office of the Eastern Indonesian Conference Union

This study aims to examine the effect of human resource competency, utilization of information technology, and understanding of financial accounting standards on the quality of financial reports with an internal control system. This study uses primary data with 104 employees of the finance department at the Seventh-day Adventist Church (GMAHK) of the Eastern Indonesian Conference Union as respondents. This study uses path analysis for hypothesis testing. The findings show that human resource competence, understanding of accounting standards, and internal control systems have direct effect on quality of financial reports. In addition, the findings also show that human resource competence and a good understanding of accounting standards directly effect on the internal control system. In an indirect relationship, human resource competence and understanding of accounting standards are able to synergize with an effective internal control system in presenting quality financial reports. The findings of this study also indicate that information technology in GMAHK does not have a significant role in determining the quality of financial reports. The findings suggest that GMAHK needs to develop staff training, especially in mastering new information technology applications to ensure the continued quality of financial reports.

Determinants influencing fraud detection: Role of internal auditors’ quality

Frequent occurrences of fraud take place due to poor fraud prevention and detection. The purpose of this study is to ascertain the impact of internal audit effectiveness and continued professional commitment to fraud detection with internal auditors’ quality as a moderating variable. Seventy-eight questionnaires were distributed to internal auditors and supervisors at the Inspectorate of Riau City, Indonesia, who had at least two years of experience. Structural equation modeling (SEM) 3.0 software was used for the data analysis. According to the study’s findings, the effectiveness of internal control (β = –0.932; p < 0.05) and the effectiveness of internal auditors (β = 1.149; p < 0.05) both have an impact on fraud detection. However, ongoing professional commitment (β = 0.069; p > 0.05) has no impact. Quality of internal auditors does not affect the relationship between the effectiveness of internal audits (β = –0.190; p > 0.05), the effectiveness of internal control (β = 0.114; p > 0.05), continued professional commitment (β = 0.018; p > 0.05), and fraud detection. The findings of this study can be used as guidance for management to enhance the performance of internal auditors and for considerations and assessments for fraud detection in the public sector.

Rational Thinking on Accounting Firms' Assurance of Corporate Internal Control Reports

In the current corporate governance environment, the role of accounting firms in certifying internal control reports is increasingly emphasized. The internal control system of a company is crucial for risk management and the quality of information disclosure. It not only encompasses the definition and composition of the internal control system but also includes the principles and objectives for achieving corporate goals. Within this framework, the certification work of accounting firms is particularly important, as it not only verifies the effectiveness of internal controls but also plays a crucial role in maintaining market order and protecting investor interests. However, accounting firms face numerous challenges and constraints in the process of certifying internal control reports. These challenges include the complexity of internal control systems, as well as issues related to maintaining independence and objectivity, and enhancing professional judgment. Rational analysis of these challenges and constraints is crucial for improving the quality and efficiency of certification work. To address these challenges, a series of strategies and suggestions have been proposed. Firstly, strengthening the independence and objectivity of accounting firms is fundamental, requiring firms to optimize their organizational structure and business processes accordingly. Secondly, enhancing the ability to exercise professional judgment is key, necessitating accountants to continually improve their professional knowledge and practical experience. Finally, developing effective strategies to address challenges, such as adopting advanced technological tools and methods, can significantly improve the accuracy and efficiency of certification work. In conclusion, accounting firms play an indispensable role in certifying internal control reports. By continuously improving certification methods and enhancing professional capabilities, not only can the quality of internal control reports be enhanced, but also contribute to the healthy development of the market. Despite facing challenges, rational analysis and effective strategies can ensure that accounting firms maximize their value in this process.

Effect of internal audit, internal control, and audit quality on fraud prevention: Evidence from the public sector in Indonesia

Fraud prevention entails developing and implementing risk management strategies, particularly regarding fraud, and establishing internal controls and transparent corporate governance practices to eliminate fraudulent activities. This study aims to examine the effect of internal auditors, internal control, and audit quality on preventing fraud at the Inspectorate of North Sumatra Province, Indonesia. The sample included 61 government internal auditors of the Inspectorate of North Sumatra Province, Indonesia. The data collection process was carried out by administering questionnaires using Google Forms. Additionally, this investigation assessed the constructs under scrutiny using a five-point Likert and the partial least square (PLS) approach. The results showed that internal audit has a positive and significant effect on fraud prevention (p < 0.05), internal control has a positive and significant effect on fraud prevention (p < 0.05), and audit quality has no effect on fraud prevention at the Inspectorate of North Sumatra Province, Indonesia (p > 0.05). The Inspectorate of North Sumatra Province, Indonesia, should conduct internal audits, implement an internal control system, and pay attention to the quality of audits to make them more effective as a basis for quality decision-making and fraud minimization.

Nonlinear Internal Control System in Business

The purpose of the written study is to study the relationship between the qualifications of the CFO and the nonlinear system of the firm’s internal control system. We used three indicators of the competence of the CFO: financial education, accounting, seniority, and education. Using the model of Kazakhstan companies registered on the stock exchange in 2023. In the methodology of the internal control system, in which stimuli cause a reverse response, the internal control system should be recognized as a nonlinear approach that can have a high impact if it has little impact. The results of this study show a negative relationship between the financial, accounting experience of a CFO and work experience under a nonlinear system of internal control, which indicates that firms with high-quality CFO are facing a nonlinear internal control system in business. A business management team with a large number of employees is associated with an effective internal control system. In addition, the political preferences of senior management directly and indirectly affect the quality of financial statements through the internal control system. Several reliability tests confirm our main results. The results show that a capable CFO can effectively implement a suitable subsystem. The results of the study of a nonlinear system of internal control in business, in terms of improving individual elements of internal control in companies, can be used by members of audit firms.

SISTEM INFORMASI AKUNTANSI PROSES BISNIS JOB ORDER PADA PERUSAHAAN JASA

Accounting information systems are very important for newly established micro start-ups. Especially operational standards for main business processes. This can help start-ups carry out their business processes in a structured, orderly, controlled, and standardized manner. This applied research discusses the preparation of job order procedures that can be applied to a micro start-up business in production house services. This research aims to create accounting information systems and organize a simple job order transaction workflow with robust internal control. Procedures are prepared narratively and in flowchart form for each job order type transaction that occurs by applying the principles of effective and efficient internal control. This research method is descriptive qualitative. It can be concluded that micro start-up businesses need to have job order procedures in the form of written narratives or the form of flowcharts and also bookkeeping, which contain elements of an internal control system to adapt to the limited resources available in this micro start-up business. Keywords: Accounting Information System, Job Order, Business Process

A Study of Female Presence in the Audit Process on Audit Quality

ABSTRACT In this paper, we conduct a review of the literature on the under-representation of women as audit partners and audit committee chairs, and assess audit quality when they hold these roles. By using the U.S. sample from 2016 to 2019, our analyses show that firms with female audit partners and/or audit committee chairwomen are more likely to have lower discretionary accruals, implement more effective internal controls, and are less likely to misstate financial reports than are all male pairs. Our paper serves as a resource for those seeking to understand gender differences and to use it as a starting point to illuminate the debate on gender-specific outcomes in the auditing service industry. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M14; M42.