The Impact of IT vs. Non-IT Material Weaknesses on Chief Financial Officer (CFO) Turnover

• In Event: IT Material Weaknesses and IT Risk Management

Abstract

Prior research has shown that IT material weaknesses in internal controls are associated with higher audit fees than are other types of material weaknesses. Similarly, prior research has reported an association between poor financial performance and CFO turnover (Coughlan et al. 1985). This study examines the relationship between CFO turnover and adverse SOX Section 404 opinions relating to IT material weaknesses over a four-year period (2004-2007) after implementation of SOX 404 requirements. Overall, the results show that companies with IT related material weaknesses over this four-year period have more CFO turnover relative to companies with non-IT related material weaknesses. However, when the data is analyzed on a year by year basis, the results seem to indicate that the that the impact of IT material weaknesses has started to fade and CFOs have improved their internal control environments, especially related to IT.

Author

• Kazeem Olalekan Akinyele, University of Central Florida