Internal Control Deficiencies and Conservative and Opportunist Accounting Choices

Abstract

Objective: To analyze the influence of internal control deficiencies on conservative and opportunistic accounting choices. Method: Objective description, documentary procedures and quantitative approach to the problem. The sample consisted of 63 to 77 companies with unbalanced data for each year from 2010 to 2015, which had an audit committee, as well as other information necessary for this analysis. The main analysis was carried out based on panel data regression using STATA software. Originality/relevance: It presents as relevant in the current study the measurement and analysis of internal control deficiencies, since little has been discussed in national surveys, mainly due to the difficulty of measurement. Results: The results showed that the company's internal environment, when presented deficiencies, did not impact on differentiated conservative accounting choices, but significantly influenced in the increase of the level of management to reduce the result. In addition, it was found that the control variables size of the company and profitability of the asset influenced in the reduction of the level of management in order to increase the result, which evidences the company's choice to reduce political costs. Theoretical and methodological contributions: As a contribution of the study, it is clear that in a weak internal control environment, even if the company has an audit committee, there may be an increase in the level of management earnings, which impairs the quality of accounting information.

When controls matter: evidence of non-linear association between Internal Control Weaknesses and Audit Quality

“…We also tried to control company size (Tam), company performance (ROA), and company growth potential (MTB). Company size is associated with greater risk of asymmetries and/or complexity, however, according to Ge and McVay (2005) and Cunha et al (2019), larger companies tend to have more robust ICS. Therefore, it is expected that the larger the size, the higher AQ.…”

“…In the Brazilian national literature, studies on ICDs published in journals are scarce, with emphasis on research like that by Lopes et al (2019), who analyzed the ICDs reported by listed Brazilian companies; Cunha et al (2019), who provided evidence of an association between ICDs, conservatism, and earnings management; and Brandão et al (2021), who analyzed the association between ICDs and Audit Red Flags (ARF). However, some papers published in Brazilian congresses sought to: propose an ICD index (Teixeira & Cunha, 2016); analyze the moderating effect of ICD (Teixeira & Cunha, 2016); and analyze the association between ICD and resubmission (Silote et al, 2021).…”

Quando os controles importam: evidências da associação não linear entre as Deficiências de Controles Internos e a Qualidade de Auditoria

“…Na literatura nacional, os estudos sobre DCIs publicados em periódicos são escassos, destacando-se pesquisas como a de Lopes et al (2019), que analisaram as DCIs reportadas pelas empresas brasileiras negociadas em bolsa de valores; Cunha et al (2019), que apresentaram evidências de associação entre as DCIs, conservadorismo e gerenciamento de resultados; e Brandão et al (2021), que analisaram a associação entre DCIs e as Red Flags de Auditoria (RFA). Contudo, alguns trabalhos publicados em congressos brasileiros buscaram: propor um índice de DCIs (Teixeira & Cunha, 2016); analisar o efeito moderador de DCIs (Teixeira & Cunha, 2016); e analisar a associação entre DCIs e reapresentação (Silote et al, 2021).…”