Journal article
Internal Control Weaknesses and Financial Reporting Fraud
Auditing : a journal of practice and theory, Vol.36(3), pp.45-69
08/01/2017
DOI: 10.2308/ajpt-51608
Abstract
This study examines whether and how weak internal controls increase the risk of financial reporting fraud by top managers. There is a longstanding debate on whether control strength significantly affects fraud risk, yet little evidence on this issue. Further, there is no evidence on the mechanism linking control strength to fraud risk. We find a strong association between material weaknesses and future fraud revelation. We theorize that this link could be attributable to weak controls (1) giving managers greater opportunity to commit fraud, or (2) signaling a management characteristic that does not emphasize reporting quality and integrity. We find support for the opportunity explanation, but not through specific accounts linked to control weaknesses. Instead, consistent with the PCAOB's assertion, weaknesses in entity-wide controls, not process-level controls, are associated with a higher risk of reporting fraud.
Details
- Title: Subtitle
- Internal Control Weaknesses and Financial Reporting Fraud
- Creators
- Dain C. Donelson - The University of Texas at AustinMatthew S. Ege - Mitchell InstituteJohn M. McInnis - The University of Texas at Austin
- Resource Type
- Journal article
- Publication Details
- Auditing : a journal of practice and theory, Vol.36(3), pp.45-69
- Publisher
- Amer Accounting Assoc
- DOI
- 10.2308/ajpt-51608
- ISSN
- 0278-0380
- eISSN
- 1558-7991
- Number of pages
- 25
- Grant note
- Red McCombs School of Business Mays Business School
- Language
- English
- Date published
- 08/01/2017
- Academic Unit
- Accounting; Law Faculty
- Record Identifier
- 9984380544302771
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