The Impact of Internal Control Quality on CFO Turnover

Abstract

Accurate financial reports are crucial for regulators, auditors, and investors to understand the condition of a company. CFO turnover and internal financial controls play a large role in determining the quality of financial reporting. We investigated the association between CFO turnover and internal controls and found that companies with deficient internal controls are more likely to terminate their CFOs following financial restatements. Companies with deficient internal controls are also likely to have lower earnings quality. In this study, we further investigated how companies experiencing CFO turnover with weak internal controls can subsequently change controls to impact earnings quality.

Association of information technology and internal controls of Iranian state agencies

“…Wang and Huang (2013) showed that accurate financial statements are very important to regulators, auditors and investors to understand the status of a company. CFO turnover and internal financial controls play an important role in recognizing the quality of financial reports.…”

Occurrence and Consequences of Surprise Internal Control Disclosures

“…Agrawal & Cooper 2017 As noted above, prior studies show that there are adverse consequences to both auditors and CFOs following MW disclosures (Ettredge et al, 2011;Ettredge et al, 2007;Johnstone et al, 2011;Li et al, 2010;Wang & Huang, 2013). Auditor dismissal is costly in terms of incremental managerial time and start-up fees paid to a new auditor for training and review or re-audit of prior years (AICPA, 1978;De Angelo, 1981;Beattie & Fearnley, 1995).…”

“…My regression model controls for other factors that can be associated with CFO changes; the control variables are based on prior studies(Gietzmann, Marra, & Pettinicchio, 2016;K. Johnstone et al, 2011;Li et al, 2010;Wang & Huang, 2013) and control for financial and executive characteristics shown to be associated with CFO changes. The logistic regression model is:The dependent variable in the above model, CFOCHG, equals 1 if there is a CFO turnover within one-year of a MW disclosure and 0 otherwise.…”