1 / 17

Examining the Potential Benefits of Internal Control Monitoring Technology

Sam M. Walton College of Business Department of Accounting. Examining the Potential Benefits of Internal Control Monitoring Technology. Adi Masli, Gary Peters and Vernon Richardson Juan Manuel Sanchez. University of Waterloo Centre for Information Integrity & Information Systems Assurance

jillian-erickson
Download Presentation

Examining the Potential Benefits of Internal Control Monitoring Technology

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Sam M. Walton College of Business Department of Accounting Examining the Potential Benefits of Internal Control Monitoring Technology Adi Masli, Gary Peters and Vernon Richardson Juan Manuel Sanchez University of Waterloo Centre for Information Integrity & Information Systems Assurance 6th Bi-Annual Research Symposium

  2. Research Question • What are the potential benefits that firms can realize from implementing Internal Control Monitoring (ICM) technology designed to support and facilitate internal control processes?

  3. Potential Benefits of ICM Technology Conceptually More Effective Internal Control Systems Enhanced Audit Efficiency Timely Audit Reporting Empirically • Lower likelihood of material control weaknesses • Lower audit fees • Shorter audit report delays

  4. Incremental Contribution • Structural changes have increased the demand for and sophistication of effective internal control monitoring (Coderre 2006; PwC 2006; PCAOB 2007). • SOX Section 404 requires evaluation and disclosure of internal control process - penalties for non-compliance (e.g., Hammersley et al. 2008; Ashbaugh-Skaife et al. 2009). • COSO issued additional guidelines on monitoring internal control systems (2009). • Many organizations were not fully utilizing the monitoring component of internal control. • Practitioners’ (ITGI 2008) and external audit partner’s (Behn et al. 2006) views suggest that ICM technology may or may not work.

  5. Effective Internal Control Systems Period of Increasing Focus and Revelation of Material Weaknesses Enhanced Monitoring Explicit Controls SOX Process Support ICM Technology Lower likelihood of Material Weaknesses H1: Firms implementing ICM technology will exhibit a lower likelihood of experiencing material internal control weaknesses subsequent to ICM technology implementation. Doyle et al. (2007)

  6. Enhanced Audit Efficiency Period of Increasing Audit Requirements and Audit Fees Timely Audit Support (persuasive evidence) Enhanced SOX Audit Trails Stronger Reporting Systems ICM Technology Constraint on Increasing Audit Fees H2: Firms implementing ICM technology will exhibit smaller increases in audit fees subsequent to ICM technology implementation. Raghunandan and Rama (2006)

  7. Enhanced Audit Timeliness Period of Increasing Audit Requirements and Audit Report Delays Stronger Reporting & Documentation Systems Automation of Process Workflows Management of Disparate Reporting Systems ICM Technology Constraint on Increasing Audit Delays H3: Firms implementing ICM technology will exhibit smaller increases in audit delays subsequent to ICM technology implementation. Ettredge et al. (2006)

  8. Strategic Nature of ICM technology Relative to Compliance Implementations, Transformative Ones: Go Beyond Complying with SOX Integrate Enterprise-wide Risk and Compliance Assurance Initiatives ICM is a Critical Component of IS ICM Technology Greater Impacts on Assurance Outcomes H4: ICM technology transformative implementations will exhibit greater impacts on assurance outcomes than ICM technology compliance implementations. Dehning et al. (2003)

  9. Sample • Announcements of “SOX” ICM IT Implementations • (2003-2006) (n = 139) • Audit Analytics Control Sample (n = 14,654)

  10. Regression ModelsDoyle et al (2007); Rhagunandan and Rama (2006); Ettredge et al. (2006) Dependent Variables Material Weaknesses* % Audit Fee Increase** % Audit Delay Increase** Independent Variables SOX ICM Size Complexity Financial Health Reporting Quality Auditor Self-Selection * Measured at year t+1 ** Measured as changes from year t (implementation year) to t+1

  11. Results (H1 and H4) – Material Weaknesses

  12. Results (H2 & H4) – Audit Fee Change

  13. Results (H3 & H4) – Audit Delays Change

  14. Other Robustness Tests • Alternate Control Group • Management Changes and ICM Technology Implementation • Simultaneity Amongst DVs • Econometric Issues Associated with Material Weakness Tests

  15. Limitations • Self-selection not totally ruled out • Short-window (1 year ahead) to capture benefits • Low sample size • Examine only benefits

  16. Conclusions • Out study supports the benefit-related assertions embedded within the conceptual application of effective ICM practices.

  17. Thanks

More Related