2016
DOI: 10.1016/j.adiac.2016.04.008
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Internal control weaknesses and evidence of real activities manipulation

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Cited by 43 publications
(44 citation statements)
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“…Thus, the audit committee may pressurize the IAF provider to monitor and report such activities, as IAF is under its monitoring, and assists it to perform financial reporting and oversights of internal control systems (Bajra & Cadez, 2018a; Sarens, De Beelde, & Everaert, 2009). Lastly, material weakness research also supports the role of IAF in the context of REM (Järvinen & Myllymäki, 2016; Lenard, Petruska, Alam, & Yu, 2016; Lin, Pizzini, Vargus, & Bardhan, 2011). This research contends that REM activities are committed if there is a material weakness in the internal control system that results from low‐quality IAF.…”
Section: Background Prior Research and Hypothesis Developmentmentioning
confidence: 75%
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“…Thus, the audit committee may pressurize the IAF provider to monitor and report such activities, as IAF is under its monitoring, and assists it to perform financial reporting and oversights of internal control systems (Bajra & Cadez, 2018a; Sarens, De Beelde, & Everaert, 2009). Lastly, material weakness research also supports the role of IAF in the context of REM (Järvinen & Myllymäki, 2016; Lenard, Petruska, Alam, & Yu, 2016; Lin, Pizzini, Vargus, & Bardhan, 2011). This research contends that REM activities are committed if there is a material weakness in the internal control system that results from low‐quality IAF.…”
Section: Background Prior Research and Hypothesis Developmentmentioning
confidence: 75%
“…We also contend that firm‐specific expertise of external IAF providers will constrain REM for the following reasons. First, REM can be committed through violating the regular internal control procedures throughout the year, such as credit terms, raw materials flow and expenses recognition (Järvinen & Myllymäki, 2016; Lenard, Petruska, Alam, & Yu, 2016). Since IAF activities are mostly related to auditing and developing internal control procedures related to operations and financial reporting (Bajra & Cadez, 2018a; Sarens, De Beelde, & Everaert, 2009), external IAF providers can build extensive knowledge of the client's internal control system through familiarity.…”
Section: Background Prior Research and Hypothesis Developmentmentioning
confidence: 99%
“…Moreover, REM reflects weaknesses in the internal audit function (IAF). A study conducted by Lenard, Petruska, Alam, and Yu (2016) in the US market demonstrated that internal control weaknesses in companies is positively associated with REM, thus suggesting that companies which practice REM have lower performance in subsequent years. Similarly, Moradi, Salehi, and Zamanirad (2015) reported that REM is negatively associated with the future performance of companies.…”
Section: Consequences Of Real Earnings Managementmentioning
confidence: 99%
“…Strong internal controls further enhance corporate governance by improving the spillover effects of the information environment. Lenard et al (2016) find that firms with internal control deficiencies are more likely to use real earnings management to implement earnings manipulation, while those that achieve compliance report less satisfactory performance levels the next year. Furthermore, firms with high-quality internal control can effectively suppress this type of surplus manipulation, which deviates from the production and operation objectives.…”
Section: Literature Reviewmentioning
confidence: 95%