IDEAS home Printed from https://ideas.repec.org/a/ibf/acttax/v5y2013i1p19-28.html
   My bibliography  Save this article

Internal Control And Financial Quality: Evidence From Post-Sox Restatement

Author

Listed:
  • Ya-Fang Wang

Abstract

Studies of post-SOX restatements have examined the cause of the increase and have documented the association with internal controls in a negative light. In general, restatements result from internal control problems because internal controls are the first line of defense for financial statement quality. However, prior research ignores internal controls have different quality levels and may make various impacts on restating companies. Thus, this study examines the association between restatements and internal controls by examining whether and how internal control quality affects degree of restatement severity. Empirical results show that restatement severity increases in degree of internal control deficiency under among three definitions of internal control quality.

Suggested Citation

  • Ya-Fang Wang, 2013. "Internal Control And Financial Quality: Evidence From Post-Sox Restatement," Accounting & Taxation, The Institute for Business and Finance Research, vol. 5(1), pages 19-28.
    • Handle: RePEc:ibf:acttax:v:5:y:2013:i:1:p:19-28
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v5n1-2013/AT-V5N1-2013-3.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Suraj Srinivasan, 2005. "Consequences of Financial Reporting Failure for Outside Directors: Evidence from Accounting Restatements and Audit Committee Members," Journal of Accounting Research, Wiley Blackwell, vol. 43(2), pages 291-334, May.
    2. Patricia M. Dechow & Richard G. Sloan & Amy P. Sweeney, 1996. "Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC," Contemporary Accounting Research, John Wiley & Sons, vol. 13(1), pages 1-36, March.
    3. Doyle, Jeffrey & Ge, Weili & McVay, Sarah, 2007. "Determinants of weaknesses in internal control over financial reporting," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 193-223, September.
    4. Ashbaugh-Skaife, Hollis & Collins, Daniel W. & Kinney Jr., William R., 2007. "The discovery and reporting of internal control deficiencies prior to SOX-mandated audits," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 166-192, September.
    5. Kinney, William Jr. & McDaniel, Linda S., 1989. "Characteristics of firms correcting previously reported quarterly earnings," Journal of Accounting and Economics, Elsevier, vol. 11(1), pages 71-93, February.
    6. Zoe†Vonna Palmrose & Susan Scholz, 2004. "The Circumstances and Legal Consequences of Non†GAAP Reporting: Evidence from Restatements," Contemporary Accounting Research, John Wiley & Sons, vol. 21(1), pages 139-180, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    2. Philip Beaulieu & Louise Hayes & Lev M. Timoshenko, 2023. "Changes in accounting estimates: An update of priors or an earnings management strategy of “last resort”?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 622-659, March.
    3. Eunice S. Khoo & Youngdeok Lim & Gary S. Monroe, 2020. "Audit Committee Members’ Reputation Incentives and Their Effectiveness in Monitoring the Financial Reporting Process," Abacus, Accounting Foundation, University of Sydney, vol. 56(3), pages 348-406, September.
    4. Goh, Beng Wee & Li, Dan, 2013. "The Disciplining Effect of the Internal Control Provisions of the Sarbanes–Oxley Act on the Governance Structures of Firms," The International Journal of Accounting, Elsevier, vol. 48(2), pages 248-278.
    5. Dan Weiss, 2014. "Internal Controls in Family-Owned Firms," European Accounting Review, Taylor & Francis Journals, vol. 23(3), pages 463-482, September.
    6. Chernobai, Anna & Yasuda, Yukihiro, 2013. "Disclosures of material weaknesses by Japanese firms after the passage of the 2006 Financial Instruments and Exchange Law," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1524-1542.
    7. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    8. John Goodwin & Yigit Atilgan & Serif Aziz Simsir & Kamran Ahmed, 2020. "Investor reaction to accounting misstatements under IFRS: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2467-2512, September.
    9. Seemantini Pathak & Codou Samba & Mengge Li, 2021. "Audit committee diversity and financial restatements," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(3), pages 899-931, September.
    10. Schrand, Catherine M. & Zechman, Sarah L.C., 2012. "Executive overconfidence and the slippery slope to financial misreporting," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 311-329.
    11. Hunton, James E. & Rose, Jacob M., 2008. "Can directors' self-interests influence accounting choices?," Accounting, Organizations and Society, Elsevier, vol. 33(7-8), pages 783-800.
    12. Marie Herly & Jan Bartholdy & Frank Thinggaard, 2020. "A re‐examination of accruals quality following restatements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(7-8), pages 882-909, July.
    13. Udi Hoitash, 2011. "Should Independent Board Members with Social Ties to Management Disqualify Themselves from Serving on the Board?," Journal of Business Ethics, Springer, vol. 99(3), pages 399-423, March.
    14. Wen-Wen Chien & Roger W. Mayer & John T. Sennetti, 2010. "Audit Committee Effectiveness In The Largest Us Public Hospitals: An Empirical Study," Accounting & Taxation, The Institute for Business and Finance Research, vol. 2(1), pages 107-127.
    15. Ya-Fang Wang & Yu-Ting Huang, 2014. "Types Of Restatement Decisions And Ex-Ante Red Flags Of Internal Control Quality," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 8(1), pages 1-8.
    16. Westfall, Tiffany J. & Myring, Mark, 2022. "Are voluntary internal control weakness disclosures in initial public offerings associated with managerial ability and subsequent financial reporting quality?," Advances in accounting, Elsevier, vol. 59(C).
    17. Sarah C. Rice & David P. Weber, 2012. "How Effective Is Internal Control Reporting under SOX 404? Determinants of the (Non‐)Disclosure of Existing Material Weaknesses," Journal of Accounting Research, Wiley Blackwell, vol. 50(3), pages 811-843, June.
    18. Ji, Xu-dong & Lu, Wei & Qu, Wen, 2015. "Determinants and economic consequences of voluntary disclosure of internal control weaknesses in China," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(1), pages 1-17.
    19. Leone, Andrew J., 2007. "Factors related to internal control disclosure: A discussion of Ashbaugh, Collins, and Kinney (2007) and Doyle, Ge, and McVay (2007)," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 224-237, September.
    20. Teng-Shih Wang & Yi-Mien Lin & Chin-Fang Chao, 2013. "Board independence, executive compensation and restatement," Applied Financial Economics, Taylor & Francis Journals, vol. 23(11), pages 963-975, June.

    More about this item

    Keywords

    Internal control; Financial quality; Restatement;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • K20 - Law and Economics - - Regulation and Business Law - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibf:acttax:v:5:y:2013:i:1:p:19-28. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mercedes Jalbert (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.