Non-Compliance of COSO’s 2013 Framework and Accounting Conservatism

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 6: Financial Reporting Quality

Abstract

Using data from Standard & Poor’s (S&P) 1500 firms during 2010-2014, we examine the determinants and consequences of non-compliance of COSO’s 2013 internal control framework. We firstly investigate whether non-compliance of 2013 framework is related to firm characteristics, and internal control and external auditor characteristics. We find that firms with smaller size, higher leverage, weaker internal control, more foreign operations, and less operating and geographic segments are more likely to non-comply with the use of COSO’s 2013 framework after the transition period. We also investigate whether non-compliance of COSO’s 2013 framework is related to accounting conservatism. We find that firms that non-comply with the use COSO’s 2013 framework after the transition period have lower conservative accounting, compared to compliant firms. Overall, this study provides evidence on the role of (strong) internal control system as an important governance mechanism with the firms, and a new perspective on the linkage between the non-compliance and accounting conservatism.

Authors

• Kunsu Park, University of Hawaii-Manoa

• Juan Qin, University of Hawaii at Manoa

• Timothy Andrew Seidel, Brigham Young Unversity

• Jian Zhou, University of Hawaii-Manoa