Internal Control Weaknesses and Financial Upskilling: Evidence from U.S. Job Postings

• In Event: Human Capital

Abstract

Ineffective internal control often relates to a lack of qualified personnel with sufficient accounting and technical expertise. In this study, we examine whether firms respond to internal control failures with targeted financial upskilling (i.e., increasing the specific accounting and finance skills demanded from their employee base). Using unique data containing the near universe of job postings, we document significant increases in financial upskilling among employees following a firm’s disclosure of an internal control weakness. The upskilling effect we document is not limited to just accounting roles, but also extends to non-accounting personnel that interface with accounting functions, suggesting an important role for all personnel in remediating internal control failures. We further demonstrate that our results are not explained by a general increase in labor demand or other forms of upskilling, including general business or industry skills. Finally, we find that upskilling is associated with a higher likelihood of internal control remediation, especially for firms with restatements. Overall, our findings shed new light on how firms internally respond to ineffective internal controls.

Authors

• Janet Gao, Indiana University

• Kenneth Merkley, Indiana University - Bloomington

• Joseph Pacelli, Indiana University

• Joseph H Schroeder, Indiana University - Bloomington