Do Firms’ Reporting Incentives Restrain Internal Control Weaknesses?

• In Event: Auditing I (100 mins)
  In Paper Session: Auditing

Abstract

Prior researchers advocate that financial reporting quality is influenced mainly by firms’ reporting incentives, but not due to the difference of accounting standards. We follow Daske et al. (2013) and develop a comprehensive index of reporting incentives to examine its relationship with firms’ earnings quality and reporting of internal control weaknesses. We find that higher firm-level reporting incentives are associated with better earnings quality, and may restrain the occurrence of internal control weaknesses, especially company-level material weaknesses. The study is the first study to use a composite firm-level reporting incentive index to test the accrual quality and internal control weaknesses of U.S. listing firms after SOX.

Authors

• Yi-Ling Lin, National Chengchi University

• Ling-Tai Lynette Chou, National Chengchi University