The Impact of Organizational Identity and Professional Norm Salience on Internal Auditorss Assessments of Internal Control Weaknesses

2016 ◽  
Author(s):  
Ian Thomas Burt ◽  
Theresa Libby
Keyword(s):  
Internal Control ◽  
Organizational Identity ◽  
Internal Control Weaknesses ◽  
The Impact ◽  
Professional Norm

Organizational identity, professional identity salience and internal auditors’ assessments of the severity of internal control concerns

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ian Burt ◽  
Theresa Libby
Keyword(s):  
Professional Identity ◽  
Internal Control ◽  
Organizational Identity ◽  
Internal Audit ◽  
Identity Salience ◽  
Content Type ◽  
Internal Auditors ◽  
Internal Control Weaknesses ◽  
The Impact ◽  
Benefits And Costs

Purpose This paper aims to examine whether increasing the salience of the internal auditor’s professional identity, defined by the expectations of their professional group, increases internal auditors’ judgments of the severity of internal control concerns when their organizational identity is high. Design/methodology/approach This paper tests the hypothesis using a laboratory experiment with internal auditors as participants. Findings The results support the hypothesis that professional identity salience moderates the relation between organizational identity and the assessed severity of identified internal control weaknesses. Increasing the salience of professional identity results in a more severe assessment of identified internal control weaknesses when organizational identity is high than when it is low. Originality/value Prior research in the lab and in the field provides mixed results about the impact of organizational identity on internal auditors’ judgments of the severity of identified internal control concerns. This paper contributes to the discussion on this issue. In addition, the results have implications for the debate about the benefits and costs of in-house versus out-sourced internal audit functions.

Does Mandatory Disclosure of Internal Control Weaknesses Affect Corporate Financing Decisions?

2018 ◽  
Vol 35 (3) ◽  
pp. 581-606 ◽  
Author(s):  
Xinghua Gao ◽  
Yonghong Jia ◽  
Siyi Li
Keyword(s):  
Internal Control ◽  
Information Environment ◽  
External Financing ◽  
Equity Financing ◽  
Corporate Financing ◽  
Financing Decisions ◽  
Financing Choices ◽  
Internal Control Weaknesses ◽  
Financing Behavior ◽  
The Impact

We examine the impact of internal control weaknesses (ICWs) on firms’ financing choices and how firms alter their financing behavior after the mandated disclosure of ICWs. We find that, before disclosure, ICW firms tend to seek external financing more than non-ICW firms do and are more likely to use equity financing as opposed to debt. After the disclosure, however, ICW and non-ICW firms exhibit similar financing preferences. In exploring the motivations for equity financing, we find that ICW firms are more prone than non-ICW firms to use the equity proceeds to fund investments and that this penchant disappears post-disclosure. The overall evidence indicates that ICW disclosure alters the information environment and managerial incentives, which has significant impact on firms’ financing decisions.

The Impact of Information Technology Internal Controls on Firm Performance

2012 ◽  
Vol 24 (2) ◽  
pp. 39-49 ◽  
Author(s):  
Lemuria D. Carter ◽  
Brandis Phillips ◽  
Porche Millington
Keyword(s):  
Information Technology ◽  
Firm Performance ◽  
Internal Control ◽  
Ordinary Least Squares ◽  
Internal Controls ◽  
Publicly Traded ◽  
Sarbanes Oxley ◽  
Internal Control Weaknesses ◽  
Performance Results ◽  
The Impact

Since the introduction of the Sarbanes-Oxley (SOX) Act in 2002, companies have begun to place more emphasis on information technology (IT) internal controls. IT internal controls are policies that provide assurance that technical systems operate as intended, provide reliable data, and comply with regulations. Research suggests that firms with strong internal controls perform better than those with internal control weaknesses. In this study, the authors evaluate the impact of IT internal controls on firm performance. The sample includes 72 publicly traded firms, 36 that reported IT internal control weaknesses and 36 that did not. The results of ordinary least squares (OLS) regression indicate that substantive IT internal control weaknesses negatively impact firm performance. Results and implications for research and practice are discussed.

scholarly journals Internal Control Weakness and Managerial Myopia: Evidence from SOX Section 404 Disclosures

2019 ◽  
Vol 8 (1) ◽  
pp. 71-83 ◽  
Author(s):  
Amy E. Ji
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Investment Decisions ◽  
Reporting Quality ◽  
Internal Controls ◽  
Financial Reporting Quality ◽  
Section 404 ◽  
Managerial Myopia ◽  
Internal Control Weaknesses ◽  
The Impact

Problem/ Relevance: Managerial myopia is an important issue of interests to academics, practitioners, and regulators as managers have been condemned for their obsession with short-term earnings and myopic investment decisions that sacrifice firms’ long term value for shareholders. This article contributes by examining whether the quality of firms’ internal controls over financial reporting (ICFR) is associated with managerial myopia. Research Objective/ Questions: The purpose of this study is to examine whether managers in firms reporting material internal control weaknesses (ICW) under Section 404 of the Sarbanes-Oxley Act (SOX) of 2002 engage in myopic behaviors more than those in firms without reporting ICW. Methodology: The study uses the logit regression model to investigate a sample obtained from Compustat for the period of 2005-2013. Major Findings: The study finds a positive association between internal control weaknesses reported by auditors under Section 404 of the SOX and managerial short-termism which is measured by the probability of cutting R&D expenses in the current year from the previous year. Implications: Whereas prior studies mostly examine the impact of internal controls on accounting quality, this study demonstrates the implication of internal controls beyond financial reporting quality by showing an association between internal control quality and managerial myopia. Future research may further investigate the association between firms’ financial reporting quality and managerial investment decisions.

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