The Effect of Type of Internal Control Report on Users’ Confidence in the Accompanying Financial Statement Audit Report*

Asare, Stephen Kwaku; Wright, Alex

doi:10.1111/j.1911-3846.2011.01080.x

Cited by 29 publications

(18 citation statements)

References 26 publications

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“…Apart from Beneish, Billings and Hodder (2008), research has generally found negative market reactions to reporting internal control weaknesses (De Franco, Guan & Lu, 2005;Cheng, Ho & Tian, 2006;Rezaee et al, 2012). The idea that investors value internal control reporting has been confirmed by further experimental and archival studies (Doyle, Ge & McVay, 2007;Ashbaugh-Skaife et al, 2008Hammersley, Myers & Shakespeare, 2008;Schneider & Church, 2008;Shelton & Whittington, 2008;Hermanson, Krishnan & Ye, 2009;Schneider, 2009;Asare & Wright, 2012).…”

Section: Reactions To Audit Reportsmentioning

confidence: 87%

Bank Directors’ Perceptions of Expanded Auditor's Reports

2016

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Subsequent to the financial crisis, standard setters developed suggestions for enhancing the audit function, in order to increase financial stability. One related idea is to expand the audit report disclosed to the public, to ensure that it is fit for purpose. This study investigates the impact of expanded audit reports, namely information on the assurance level, materiality levels and key audit matters (KAM), on bank director perceptions of the quality of the financial statements, the audit and the audit report, as well as on their credit approval decisions. We conduct an experiment involving a sample of 105 bank directors and use ANCOVA to determine the predictors of bank director perceptions and decisions. Our findings suggest that disclosing the assurance level has a significantly positive impact. In contrast, we cannot demonstrate a material effect of expanding the audit report to include the materiality level or KAM. As a consequence, standard setters should carefully analyse the effect of additional information before making decisions on expanding the content of the audit report. Such expansions are not necessarily perceived as useful by stakeholders.

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Section: Reactions To Audit Reportsmentioning

confidence: 87%

Bank Directors’ Perceptions of Expanded Auditor's Reports

2016

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“…Lopez et al () find that an adverse opinion is associated with lower assessed financial reporting quality, including greater risk of material misstatement, greater risk of future restatement, lower earnings sustainability, lower earnings predictability, and lower financial statement transparency. Asare and Wright () provide evidence that an adverse audit opinion undermines users' confidence in financial statements, which in turn impacts their investment decisions.…”

Section: Introductionmentioning

confidence: 99%

The Impact of Section 302 and 404(b) Internal Control Disclosures on Prospective Investors' Judgments and Decisions: An Experimental Study

Church

Schneider

2016

Int J Auditing

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This paper reports the results of an experiment designed to investigate participants' reaction to quarterly and annual internal control disclosures. Quarterly disclosures include managers' disclosure of no control deficiencies, a significant deficiency, or a material weakness. Annual disclosures include the auditors' opinion on internal control, which either affirms managers' earlier disclosure or reveals new information. We find that participants react negatively to the disclosure of a material weakness, as might be expected. Participants invest less in a target company when internal control is ineffective rather than effective. By comparison, participants do not react negatively to the disclosure of a significant deficiency. Indeed, we find that they react positively to such disclosure accompanied by a clean (unqualified) audit opinion on internal control. Subsequent analyses indicate that participants' investment decisions are affected by their assessments of the reliability of financial statements and the credibility of management.

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“…Standard unqualified audit report loses some credibility when it is combined with an adverse entity-level internal controls over financial reporting report as alleged by some users (Asare and Wright, 2012). Section 404 of the Sarbanes-Oxley Act stated that each annual report contains an internal control report, which shall (1) state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (2) contain an assessment of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.…”

Section: Introductionmentioning

confidence: 99%

Automatic Formulation of the Internal Control Report over Financial Reporting

وهدان¹,

الشعراوى²

2020

المجلة العلمیة للبحوث التجاریة

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The evaluation of the internal controls over financial reporting is a difficult task which has to be learned over the years. Experience is a good teacher in this respect. So, education guided by experience may be expected to be fruitful. The purpose of this paper is to model, implement, and validate a knowledge-based system, called the "Auditor"s Report on Internal Controls over Financial reporting" (ARICOFR), that is capable of formulating the opinion on the effectiveness of internal controls over financial reporting, as expressed in the auditor"s report on internal controls over financial reporting. The main research questions studied in this study are: (1) can ARICOFR carry out the task of evaluating the internal controls over financial reporting equally as may be expected from an experienced auditor? If so, (2) how should ARICOFR be constructed and validated? And (3) to what extent is ARICOFR effective, efficient, and acceptable as a tool to help auditor evaluate the effectiveness of internal controls over financial Reporting? The knowledge used by ARICOFR is developed from the literature, and from qualified auditors through questionnaires and in-depth interviews. After putting into practice, the knowledge base is presented to experienced auditors for review. The ARICOFR performance is confirmed by test cases. From the consequences of the confirmation, we may conclude that ARICOFR is fruitful in performing the task of evaluating the internal controls over financial reporting. : ‫البحث‬ ‫ملخص‬

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The Effect of Type of Internal Control Report on Users’ Confidence in the Accompanying Financial Statement Audit Report*

Cited by 29 publications

References 26 publications

Bank Directors’ Perceptions of Expanded Auditor's Reports

Bank Directors’ Perceptions of Expanded Auditor's Reports

The Impact of Section 302 and 404(b) Internal Control Disclosures on Prospective Investors' Judgments and Decisions: An Experimental Study

Automatic Formulation of the Internal Control Report over Financial Reporting

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