Firm Characteristics and Voluntary Management Reports on Internal Control

Abstract

This study provides evidence on the nature of voluntary management reports on internal control (MRIC), and on the characteristics of firms issuing such reports, before internal control reports were mandated under Section 404 of the Sarbanes-Oxley Act. We examine the association between firm characteristics and the voluntary inclusion of an MRIC in the firm's annual report. Our analysis of 397 midsized firms in 1998 indicates that a voluntary MRIC is more likely for firms that are larger, have an audit committee that meets more often, have a greater level of institutional ownership, and have more rapid income growth. We find that a voluntary MRIC is less likely for companies with more rapid sales growth. Slightly more than one-third of our sample issues an MRIC. None of the voluntary MRICs mention any material weaknesses; no reports include an auditor attestation; less than half (41 percent) of the reports include a statement that controls were effective; and only three of these reports include the criteria used to assess control effectiveness.

Internal Control Disclosure and Corporate Governance: Empirical Research from Chinese Listed Companies

“…Jifu Cai [14] empirically researched Chinese A-share listed companies in 2003, indicating that the quality of disclosure is positively related to profitability, financial situation and the quality of financial report. Bronson et al [15] suggested that the quality of disclosure is positively related to the times of audit committee meetings and net profit growth rate and negatively related to sales growth rate. Hongxing Fang and He Sun [8] illustrated internal control disclosure is in connection with stock exchange, size, type of auditors' opinion in a sample of nonfinancial companies listed on SSE in 2006.…”

Voluntary disclosure of internal control and auditor’s attestation: evidence from China

“…Bronson et al (2006) argue that institutional shareholders are tough monitors and thereby require firms to release their IC reports. However, Deumes and Knechel (2008) argue that institutional shareholders are effectively monitors, and therefore can substitute for IC reports.…”

“…For example, Bronson et al (2006) argue that institutional shareholder ownership is positively related to voluntary IC reporting. However, Deumes and Knechel (2008) argue that, because institutional shareholders can effectively mitigate information asymmetry and agency problems, there is no need for further disclosure of IC reports.…”

“…There are some exceptions. Bronson et al (2006) examine the association between firm characteristics and voluntary IC disclosure. Deumes and Knechel (2008) do examine incentives for voluntary IC disclosure.…”

Executive Pay and Performance in Portuguese Listed Companies

“…One of the arguments in favour of a creating a permanent auditing body in the board of directors, instead of having a separate fiscal board, is that the members are more often present at board meetings and assess the executive director's work more closely (Bronson et al, 2006, Piot and Janin, 2007, and Brick and Chidambaran, 2010. The fiscal board meets less frequently, and their monitoring role is more limited because they do not have access to the same level of information as the auditing committee members.…”