Internal Control Reports Research Articles

Product Market Competition and Stock Price Crash Risk: Evidence from China

Synopsis The research problem This study analyzes the relationship between product market competition (PMC) and stock price crash risk in China, especially for firms with weak corporate governance and a lower-quality information environment. Motivation Emerging capital markets like China have less-developed financial systems and institutions compared to developed capital markets like Europe and the United States, making them more susceptible to stock price crash risk. The impact of product market competition (PMC) on corporate decision-making has attracted considerable attention from scholars, especially given the increasingly intense and complex strategic competition in global markets and uncertainty in the world today. However, the effect of PMC on a firm’s stock price crash risk has not been thoroughly explored. Therefore, this study investigated how PMC affects managers’ tendency to hoard bad news and how this behavior contributes to the risk of stock price crashes. The test hypotheses We tested two competing hypotheses: PMC is negatively correlated with crash risk, and PMC is positively correlated with crash risk. Target population This study should be of interest to stakeholders, including firm managers, practitioners, regulatory authorities, policymakers, and investors. Adopted methodology This study employed ordinary least squares (OLS), difference-in-differences analysis (DID), and path analysis. Analysis Using a sample of Chinese A-share listed manufacturing firms from 2000 to 2021, this study found that competitive pressure from the product market encouraged managers to hide bad news, thereby increasing future stock price crash risk. Moreover, we performed additional tests to examine how PMC affected stock price crash risk. Findings We found robust evidence that PMC significantly increases stock price crash risk. Further tests showed that the effect of PMC on crash risk is more pronounced for firms with weak corporate governance and a lower-quality information environment. We also provide evidence that firms in highly competitive industries tend to disclose fewer negative words in the management discussion and analysis section of the annual report and fewer risk factors in the internal control report. Moreover, we show that operational risk is the underlying driver through which PMC affects crash risk.

Disclosure of internal control evaluation reports of Chinese enterprises: History, problems and strategies

In the realm of corporate finance, the transparency of internal control evaluations significantly impacts investor trust, market efficiency, and governance. This study examines the evolution of internal control report disclosures among Chinese listed firms, tracing their shift from voluntary to mandatory within two decades, aiming for international alignment. Utilizing descriptive analytics, data trend analysis, and visualization, we identify critical flaws in current disclosure practices, including reporting delays, incompleteness, inconsistencies, and non-standardized evaluation criteria. These shortcomings undermine the reports' quality and reliability, emphasizing the need for a unified conceptual framework and standardized reporting protocols to improve disclosure quality. Our findings highlight the essential role of enhanced internal control disclosures in advancing corporate governance and market integrity. The paper suggests that addressing these issues could significantly benefit the investment landscape. It calls for further research, possibly through quantitative analysis and case studies, to develop more effective disclosure strategies.

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.

Uncertaity in Auditing

<p>Financial audits by Certified Public Accountants (CPA audits) have become mandatory for all listed companies, in accordance with legal requirements stipulated by Securities Law and the Companies Act in many countries. The audit regulatory requirement has expanded to other organizations such as universities, political parties, and labor unions. In addition to the financial audits, CPAs’ duty have expanded to the Internal Control Report. The broadening scope of audit demonstrates that society requires public or ganizations and large companies to be transparent and to be responsible for the society.</p>

Financial Management Impact on Performance Reports in Borrower Multisupplier and Consultancy LTD, Kigali Rwanda

This study aimed to analyze the impact of financial management on performance reports in Borrower Multisupplier consultancy (BMSC Ltd, Kigali Rwanda). The research uses a descriptive survey design and quantitative method, with 133 employees and 121 sellers as a sample size. Data was collected using structured questionnaires and analyzed using SPSS software version 21. The Cronbach alpha coefficient formula was used for reliability and validity. The results show that quality financial reporting contributes significantly to performance reports, with a high positive correlation between these two factors. The use of ratio analysis is also important, with a high positive correlation between ratio analysis and performance reports. Internal control is also crucial, with a high positive correlation between internal control and performance reports. The ANOVA results show a significant relationship between financial management and performance reports in Borrower Multisupplier and Consultancy Ltd, Kigali Rwanda. The researcher concludes that financial management contributes to performance reports and recommends that companies develop financial management techniques that contribute successfully to their company's performance reports. The findings are presented and interpreted using frequencies and tables. The findings suggest that financial management plays a crucial role in enhancing performance reports and should be considered in the development of financial management strategies for borrower and multisupplier companies. Keywords: Financial management, Performance reports, Borrower Multisupplier, Consultancy, Rwanda

The influence of Internal Control effectiveness on Audit pricing: based on the empirical Evidence of Shenzhen Stock Exchange Manufacturing Industry

In recent years, incidents such as chairman Kant being arrested by the police for suspected crimes occur frequently. In the development process of these incidents, the negligence of internal control has played a guiding role. This warns us that listed companies in addition to timely disclosure of internal control reports, establish and improve the internal control system construction, but also the introduction of external supervision system, timely audit work, and the effectiveness of enterprise internal control on the follow-up audit work of audit pricing is worth discussing. This paper takes the data of 354 manufacturing companies listed in 2017 and 2018 in Shenzhen Stock Exchange from 2015 to 2017 in 2018 as samples to explore the impact of the effectiveness of internal control on audit pricing. The empirical results show that there is no significant negative correlation between the effectiveness of internal control of this year and the audit pricing of this year, and a significant negative correlation between the effectiveness of internal control of the previous year and the audit pricing of this year, indicating that the effectiveness of internal control of the previous year is an important influencing factor of the audit pricing of this year. Starting from the effectiveness of internal control, this paper discusses the influencing factors of audit pricing, enriches the research on the influencing factors of audit pricing, and provides relevant reference information for the government to standardize audit pricing.

Moderating role of human resource competence: Information technology and internal control's impact on regional financial report quality

This study's objective is to examine the influence of information technology and internal control on the quality of financial reports, with HR competency functioning as a moderator. This is a quantitative investigation with a focus on causation. This study's population comprised of SKPD Luwu Utara Regency Government employees and staff with at least one year of service. With 52 respondents, the sampling technique employed was a purposive one. This investigation utilizes primary data collected directly via questionnaires. Using standard assumption tests, such as normality tests, multicollinearity tests, heteroscedasticity tests, and autocorrelation tests, the results of the questionnaire have been examined for their validity and dependability. Methods for testing hypotheses include multiple linear regression analysis and moderate regression analysis with an interaction approach. Using the application program SPSS 25, the analysis was conducted. Internal control has a positive and statistically significant influence on the quality of financial reports, whereas information technology has no such effect. According to the moderation analysis, HR competence can moderate the relationship between information technology and financial report quality but not the relationship between internal control and financial report quality.

Analysis Of School Cash Receipt And Disbursement Procedures In Improving Internal Control

School Operational Assistance (BOS) is a government program that basically provides funding for non-personnel operational costs for basic education units as implementers of the compulsory education program. The BOS program is expected to be managed according to the principles of School Based Management (SBM). Therefore, in managing BOS funds, schools are required to develop fund management in a professional, transparent and accountable manner. The purpose of this study was to analyze the accounting information system for receiving and disbursing BOS funds. The object of this research is Pandanwangi 3 Public Elementary School, Malang City. The research was conducted by analyzing the accounting information system on the organizational structure, documents, internal control systems and the resulting reports. This study uses a descriptive analysis method that describes as a whole the implementation of the accounting information system applied to Pandanwangi 3 Public Elementary School and compared with theories related to accounting information systems, so that the desired results of this study are obtained. The results of this study indicate that the accounting information system, especially the system of cash receipts and cash disbursements, is running effectively. This can be seen from the organizational structure that is in accordance with the characteristics of the school, adequate and well-designed documents, adequate internal control systems and reports, it's just that a flowchart design has not been formed in the accounting information system.

How Does Internal Control and Competence of Human Resource Important in Financial Reporting?

Internal control and competence of human resources are related to financial reporting. Weak internal controls will lead to poor quality of financial reporting. Another factor that also affects financial reporting is the competence of human resources, it is important to establish and build the best competence of human resources in managing financial reporting. This study aims to find out how much influence internal control and competence of human resources has on financial reporting. The population in this study is staff or employees who work in a company located in Indonesia using a type of research that is Explanatory research. Sampling techniques in this study is nonprobability sampling with purposive sampling methods, this research sample is 70 staff of operational / financial department working in companies in Indonesia. This study uses primary data and the data obtained in this study will be processed using SPSS program. This study uses multiple linear regression analysis techniques to test the influence of internal control and competence of human resources on financial reporting. The results of this study showed that internal control and competence of human resources positively affect financial reporting. Keywords: Internal Control, Human Resource, and Financial Reporting

Determinants of Financial Report Reliability: Internal Control System Perspective: An Empirical Study on Takalar District Government

The dimensions of the Government internal control system (GICS) in relation to the Reliability of government financial statements are investigated in this study (RGFS). This research employs 3,810 civil personnel who operate in 15 (fifteen) Service Agencies in regional work units of the local government of Takalar District, South Sulawesi Province. Employees in official offices are chosen because of the variety of jobs that they perform, as well as their duties and responsibilities, and because of this diversity of work, employees are expected to have sufficient knowledge and experience in optimizing the internal control system and report reliability of the finances government. The results of a unidirectional link between Risk Assessment, Control actions, Information & Communication, and Monitoring have a substantial effect on RGFS, according to the results of a t-statistical study utilizing regression. In the Takalar District Government, there is just one dimension in the Government internal control system (GICS) that cannot increase the Reliability of government financial statements (RGFS), namely the Control environment dimension (GICS1).

Restating Internal Control Reports Following Financial Statement Restatements: Determinants and Consequences*

ABSTRACTAfter restating their financial statements, companies may voluntarily restate their previously issued internal control (IC) reports for the financial statement (FS) misstatement periods, changing them from “effective” to “ineffective.” This paper examines the determinants and consequences of IC restatements, which have been of concern to financial statement users. When announcing these IC restatements, companies often provide a detailed explanation of the IC problems and a discussion of their plans to remediate these problems. We find that companies with less severe IC problems that can be remediated more quickly are more likely to restate their IC reports. Moreover, these results are driven by companies with a higher need for external financing, suggesting that IC restaters voluntarily restate their IC reports in order to inform investors about their less severe IC material weaknesses and their plans to improve IC quality. Finally, we find that, relative to other FS restatement companies, IC restaters have a lower likelihood of CFO turnover and auditor resignation following the FS restatement. Taken together, our results suggest that voluntary IC restatements are used by IC restaters as a means to separate themselves from other FS restatement companies with more severe control problems and slower remediation plans. Our findings also indicate that studies investigating IC quality and related disclosures need to distinguish between IC restaters and other FS restatement companies because of the different characteristics and consequences between the two groups.

Are federal single audit reports of internal control weaknesses a useful tool for evaluating management? The case of charter schools

PurposeThe authors examine whether reports of internal control weaknesses (ICWs) under federal single audit (FSA) guidelines are a useful tool for evaluating non-profit (NP) management, using a unique nationwide sample of NP charter schools. While prior research focuses on external stakeholder reactions to reported ICWs, little if any research addresses the utility of these reports for internal users. The authors fill this gap in the literature, finding evidence suggesting that NP charter school decision-makers use internal control (IC) reports when setting executive compensation – awarding lower pay increases when deficiencies are reported.Design/methodology/approachThe authors regress executive compensation changes on reported ICWs and likely determinants of NP compensation, including organization size, growth, liquidity and management performance, using a sample of 173 school/year observations representing 113 unique schools for the years 2012–2015.FindingsThe authors find a negative relationship with executive pay increases subsequent to reports of initial and repeated IC deficiencies, indicating that lower than average pay increases are awarded subsequent to reports of ICWs.Research limitations/implicationsInterpretation of the authors' results is subject to several limitations, including the possibility of omitted variable bias and the authors' sample, though it comprises all available data for the sample period, and is relatively small and may be considered exploratory in nature. Further, charter schools represent a unique public/private partnership in the educational sector, and the results may not be generalizable to other NPs. Future research could explore the relationship between reported IC deficiencies and governance in other, broader NP sectors.Practical implicationsThe authors' findings are useful to NP organization boards of directors as they consider what factors to evaluate in their chief executive officer (CEO) compensation decisions. In addition to other criteria, inclusion of IC effectiveness in the CEO reward system is prudent, especially in today's environment of increasingly important information security and IC matters. The results suggest such information is being included. This previously undocumented use is also of particular value to regulators when weighing the costs and benefits of mandating single audits for smaller NPs, who are otherwise unlikely to obtain information on the organization's IC environment.Social implicationsThese findings may help inform the debate regarding NP charter schools, a fast-growing, economically significant and highly controversial sector in public education. Charters are predominantly funded by state and local taxes. As such, the quality of governance in NP charter schools is of interest to a wide range of stakeholders including parents, regulators and the public at large.Originality/valueWhile prior research on ICWs and NPs focuses on external stakeholder reactions to reported ICWs, little if any research addresses the utility of these reports for internal users, especially in relatively smaller organizations. The research leverages the existence of charter schools, which are independent but present nationwide, providing a suitable sample of like organizations. Further, no extant research to the authors' knowledge examines the relationship of NP executive compensation and reported ICWs – a topic previously addressed in the for-profit (FP) literature.

Peran divisi internal control pada lembaga keuangan mikro syariah

This research is based on the rapid development of Sharia microfinance institutions that are not balanced with the professionalism of its management. The purpose of this research is to dig deeper into internal control conditions on Sharia microfinance institutions, to achieve these goals of research using qualitative methods with case study approaches. The data collection process is conducted through interviews, internal control report data collection, and FGD. The informant is the division of internal control and Operations manager at BMT X. The results showed that there are two business risks of Sharia microfinance institutions that are internal risks and external risks. The internal risks faced by Sharia microfinance institutions are human resources, institutional, and systems. External risks originating from outside the conditions of the Sharia microfinance institutions are financial technology developments and the level of outcomes that affect the capital of sharia financial institutions. Both of these risks can be minimized by optimizing internal control so that the trust to sharia microfinance institutions increases. The increased trust of stakeholders was able to restore the role of Sharia microfinance institutions as the spearhead of the lower-class community economy.

The Introduction of State Regulation and Auditor Retendering in School Districts: Local Audit Market Structure, Audit Pricing, and Internal Control Reporting

SUMMARYThe impacts of auditor retendering or rotation mandates and auditor selection have been a regulatory concern for some time. However, finding suitable research settings to examine these policies has been a challenge. This paper reports the results of a study (Elder and Yebba 2020) that explores the consequences of implementing a retendering policy in a local governmental audit market. The study finds an association between periodic retendering and auditor concentration, including the growth of fee premium specialization within the market. We also find changes in quality associated with these mandates, including greater auditor effort, evidenced through higher audit fees and longer reporting delays, and improved documentation of internal controls evidenced through increased reporting of control deficiencies. Collectively, we provide evidence that periodic retendering of audit services may provide a suitable level of quality enhancement while not forcing auditees to absorb audit inefficiencies common with a rotation policy.

Automatic Formulation of the Internal Control Report over Financial Reporting

Automatic Formulation of the Internal Control Report over Financial Reporting

The role of voluntary internal control reporting in earnings quality: Evidence from China

Using discretionary accruals to proxy for earnings quality, this study investigates whether and how the first voluntary internal control reporting in 2007 is associated with earnings quality in China. We find that earnings quality is higher in 2007, yet not in 2006, for public companies issuing a first-time voluntary unqualified internal control report, compared with listed firms not issuing an internal control report. Our findings are consistent with a signalling of performance explanation and inconsistent with a signalling of effectiveness explanation. We also find that earnings quality is lower for public companies issuing an internal control report mentioning a weakness, compared with public companies not issuing an internal control report. Overall, our study suggests that public companies conduct diligent self-assessments when issuing a first-time voluntary unqualified internal control report. Consequently, there is an improvement in earnings quality.

The working experience of internal control personnel and crash risk

Purpose : This study examines The impact of human resource investment in internal control on stock price crash risk. Effective internal control ensures that information provided is complete and accurate, financial statements are reliable. By overseeing management, internal control systems can reduce agency costs between management and outside parties. In Korea, firms have to disclose information about internal control systems. The working experience of human resources in internal control systems is also provided for interested parties. If a firm hires more experienced internal control personnel, it can better facilitate the disclosure of information. Prior studies reported that information asymmetry between managers and investors increases future stock price crash risk. Therefore, the longer working experience internal control personnel have, the lower probability stock crashes have. Research design, data and methodology : This study analyzed the association between the working experience of internal control personnel and crash risk using regression analysis on KOSPI listed companies for fiscal years 2016 through 2017. The sample consists of 1,034 firm-years of non-financial firms whose fiscal year end on December 31. Career spanning data of internal control personnel was collected from internal control reports. The professionalism(IC_EXP) was measured as the logarithm of the average working experience of internal control personnel in months. Negative conditional skewness(NSKEW) and down-to-up volatility (DUVOL) are used to measure firm-specific crash risk. Both measures are based on firm-specific weekly returns derived from the expanded market model. Results : We find that work experience in internal control environment is negatively related to stock price crashes. Specifically, skewness(NSKEW) and volatility (DUVOL) are reduced when firms have longer tenure of human resources in internal control division. The results imply that firms with experienced internal control personnel are less likely to experience stock price crashes. Conclusions : Stock price crashes occur when investors realize that stock prices have been inflated due to information asymmetry. There is a learning effect when internal control processes are done repetitively. Thus, firms with more experienced internal control personnel could manage their internal control more effectively. The results of this study suggest that firms could decrease information asymmetry by investing in human resources for their internal control system.

Internal control reporting and cost of bond financing: Evidence from China

Using a sample of Chinese listed firms and a difference-in-differences research design, we examine how internal control reporting (ICR) affects firms’ bond cost. We find that, during the voluntary ICR period, bondholders only reward voluntary disclosers perceived as having higher quality of ICR and internal control systems. In addition, during the mandatory ICR period voluntary disclosers experience a significantly lower cost of debt than that of nonvoluntary disclosers, which may be explained by voluntary disclosers’ higher quality of internal control. The difference in debt cost is more pronounced when firms operate in high litigation risk and competition-intensive industries, and when the firms’ information environment is weak or the bondholders have a high demand for ICR information.

Robust Normalization of Luciferase Reporter Data.

Transient Luciferase reporter assays are widely used in the study of gene regulation and intracellular cell signaling. In order to control for sample-to-sample variation in luminescence arising from variability in transfection efficiency and other sources, an internal control reporter is co-transfected with the experimental reporter. The luminescence of the experimental reporter is normalized against the control by taking the ratio of the two. Here we show that this method of normalization, “ratiometric”, performs poorly when the transfection efficiency is low and leads to biased estimates of relative activity. We propose an alternative methodology based on linear regression that is much better suited for the normalization of reporter data, especially when transfection efficiency is low. We compare the ratiometric method against three regression methods on both simulated and empirical data. Our results suggest that robust errors-in-variables (REIV) regression performs the best in normalizing Luciferase reporter data. We have made the R code for Luciferase data normalization using REIV available on GitHub.

Have the Costs of Sox Section 404(B) Changed Over Time? An Evaluation of the Internal and External Costs of Sox Section 404(B) Compliance

We use regression discontinuity design to evaluate the effects of Section 404(b) of the Sarbanes-Oxley Act (SOX) on audit costs and financial reporting and how these effects have changed over time. While audit fee premiums associated with 404(b) compliance were substantial in the initial years of compliance, we find that the premiums declined until 2010 before reversing and returning to early SOX levels by 2015. We also find that the likelihood that a company selects a Big 4 auditor is greater for 404(b) compliers and that this drives a portion of the audit fee premium. Although we find some evidence that compliance results in more effective internal controls, this effect is confined to the initial years following the extension of management internal control reporting to non-accelerated filers. We find no evidence that the audit of internal controls over financial reporting yields more informative internal control reports. Together, while evidence suggests that audit fees associated with internal control audits have not materially and sustainably declined since inception, we find no evidence that the increased audit effort is associated with improved internal control quality or reporting. Our findings directly respond to calls from regulators and academics for research on the updated Section 404(b) compliance rules recently introduced by the SEC and should be of interest to a variety of corporate stakeholders.