Material Weakness In Internal Control And Stock Price Crash Risk

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Material Weakness in Internal Control and Stock Price Crash Risk

Author : Jie Zhou
Publisher :
ISBN 13 :
Total Pages : 63 pages
Book Rating : 4.:/5 (131 download)

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Book Synopsis Material Weakness in Internal Control and Stock Price Crash Risk by : Jie Zhou

Download or read book Material Weakness in Internal Control and Stock Price Crash Risk written by Jie Zhou and published by . This book was released on 2013 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the hitherto unexplored questions of whether and how a material weakness in internal control over financial reporting (ICW) and its disclosure influence the occurrence of extreme negative outliers in stock return distributions, which we refer to as stock price crash risk. We predict and find that firms with ICW problems are more crash-prone than firms with effective internal controls. We also find that stock price crash risk is even greater for fraud-related ICWs and revenue/cost of goods sold-related ICWs. The positive impact of ICW on crash risk is observed at least two years prior to the initial disclosure of the adverse opinion on internal control quality, but gradually decreases over the two-year period after the initial disclosure and essentially disappears subsequent to the remediation of publicly disclosed ICW problems. The above results hold even after controlling for various firm-specific characteristics that are known to influence crash risk and ICWs. Overall, our results suggest that the presence of ICWs tends to facilitate managers' bad news hoarding, which eventually increases stock price crash risk. On the other hand, public disclosure of ICWs constrains managerial incentive and ability to withhold bad news from outside investors, thereby mitigating stock price crash risk.

Internal Control and Stock Price Crash Risk

Author : Jun Chen
Publisher :
ISBN 13 :
Total Pages : 45 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Internal Control and Stock Price Crash Risk by : Jun Chen

Download or read book Internal Control and Stock Price Crash Risk written by Jun Chen and published by . This book was released on 2015 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the role played by internal control and its five components (i.e., control environment, risk assessment, control activities, information and communication, and monitoring) in alleviating future stock price crash risk. Using a unique dataset from China, we find evidence that internal control is negatively associated with future stock price crash risk. Specifically, control environment and monitoring are significantly and negatively associated with future stock price crash risk. Moreover, the negative association between internal control and crash risk is significantly more pronounced in firms with weak internal and external governance (i.e., audited by non-Big 4 auditors, located in provinces with low market development, and less conservative in accounting) and with poor ability to mitigate impacts of extreme negative events (i.e., non-state-owned enterprises). Our study highlights the delicate role of internal control as a mechanism in preventing crash of stock price.

The Effect of CEO Inside Debt Holdings on Financial Reporting Quality

Author : Guanming He
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis The Effect of CEO Inside Debt Holdings on Financial Reporting Quality by : Guanming He

Download or read book The Effect of CEO Inside Debt Holdings on Financial Reporting Quality written by Guanming He and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the effect of CEO inside debt holdings on financial reporting quality. I find that higher CEO inside debt holdings are associated with lower abnormal accruals, higher accruals quality, a lower likelihood of an earnings misstatement, and a lower incidence of earnings benchmark beating, suggesting that CEO inside debt promotes high financial reporting quality. Additional analyses reveal that (i) CEO inside debt holdings reduce firm-specific stock price crash risk, and that (ii) auditors are less likely to report a material internal control weakness for firms that have large CEO inside debt.

SOX 404 for Small, Publicly Held Companies

Author : Robert J. Sonnelitter, Jr.
Publisher : CCH
ISBN 13 : 9780808091165
Total Pages : 438 pages
Book Rating : 4.0/5 (911 download)

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Book Synopsis SOX 404 for Small, Publicly Held Companies by : Robert J. Sonnelitter, Jr.

Download or read book SOX 404 for Small, Publicly Held Companies written by Robert J. Sonnelitter, Jr. and published by CCH. This book was released on 2007 with total page 438 pages. Available in PDF, EPUB and Kindle. Book excerpt: CCH's SOX 404 for Small, Publicly Held Companies enables you to successfully and efficiently make the internal control assessment required by Section 404 of the Sarbanes-Oxley Act. In particular, this book will help non-accelerated filers-those companies that have outstanding securities with a market value of less than $75 million-with the challenging and time-consuming SOX 404 requirements. This addition to the CCH reference library gives you the tools for the evaluation, planning documentation, risk assessment, testing, and reporting necessary for successful compliance with Section 404. It focuses on the SEC's rules for an assessment of internal controls and the PCAOB's requirements for independent auditors. The free, companion CD-ROM accompanying this book includes workpapers and checklists as well as primary source material from the SEC and PCAOB to make your research and reporting as quick and cost-efficient as possible. SOX 404 for Small, Publicly Held Companies and the accompanying CD-ROM address all that is necessary to perform an assessment of internal controls over financial reporting as well as an assessment of disclosure controls. Book jacket.

Internal Control

Author : Olof Arwinge
Publisher : Springer Science & Business Media
ISBN 13 : 3790828823
Total Pages : 205 pages
Book Rating : 4.7/5 (98 download)

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Book Synopsis Internal Control by : Olof Arwinge

Download or read book Internal Control written by Olof Arwinge and published by Springer Science & Business Media. This book was released on 2012-11-07 with total page 205 pages. Available in PDF, EPUB and Kindle. Book excerpt: The concept of internal control has developed along with audit practice. As demands have been made for greater accountability in corporate governance, the significance of internal control systems in companies has increased. Traditionally internal control has had a fairly direct relationship to financial reporting quality but wider approaches to internal control have expanded those boundaries much further. Stakeholders are increasingly concerned with the effectiveness of internal controls, and disclosure requirements are making firms to go public with regard to their internal control systems. From a design perspective, current research suggests that internal control designs are contingent upon variables such as company strategies, risk appetite, regulatory characteristics, and organizational size. Also there is much to learn about internal control quality, and the way internal control quality is associated with overall corporate governance quality. This book fills that gap.

Internal Control and Operational Efficiency

Author : Qiang Cheng
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Internal Control and Operational Efficiency by : Qiang Cheng

Download or read book Internal Control and Operational Efficiency written by Qiang Cheng and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we examine whether and how internal control over financial reporting affects firm operational efficiency. We find that operational efficiency, derived from the frontier analysis, is significantly lower among firms with material weaknesses in internal control relative to firms without such weaknesses. We document some evidence suggesting that effective internal control leads to greater operational efficiency through reducing the likelihood of misappropriation of corporate resources and through enhancing the quality of internal reports for decision making. We also document that smaller firms benefit more from having effective internal control in terms of operational efficiency. In addition, we find that the market appears to understand the effect of ineffective internal control on operational efficiency: within firms with internal control material weakness, those with more negative market reaction experience a larger deterioration in operational efficiency. Lastly, we find that the firms that remediate their material weaknesses subsequently experience an improvement in operating performance and stock returns, and this effect is mainly driven by the improvement in operational efficiency. Overall, our study extends the literature by presenting systematic evidence on the effects of effective internal control on operational efficiency and firm performance.

Internal Control Strategies

Author : Julie Harrer
Publisher : John Wiley & Sons
ISBN 13 : 0470376198
Total Pages : 323 pages
Book Rating : 4.4/5 (73 download)

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Book Synopsis Internal Control Strategies by : Julie Harrer

Download or read book Internal Control Strategies written by Julie Harrer and published by John Wiley & Sons. This book was released on 2008-09-02 with total page 323 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for Internal Control Strategies A Mid to Small Business Guide "Internal Control Strategies is an excellent field guide for the implementation and maintenance of efficient and effective internal control systems. The book provides a practical approach to interpreting guidance from oversight agencies and integrating it with industry practice in a real-world environment. This handbook is an essential tool for managers and professionals going through the day-to-day struggle of managing auditor expectations and permitting business to proceed in the most efficient manner." -Michael Rodriguez, former senior manager of finance, Qualcomm Incorporated "Internal Control Strategies is the clearest path forward for middle-market SEC registrants and their independent registered public accounting firms as they streamline the SOX 404 compliance process in 2008 and beyond." -Stephen G. Austin, MBA, CPA, Managing Firm Partner,Swenson Advisors, LLP, Regional PCAOB Accounting Firm "Clearly written and practical, Internal Control Strategies is a must-read for every chief audit, finance, or compliance executive." -Jeff Miller, Partner-in-Charge, Business Risk Services,Squar, Milner, Peterson, Miranda & Williamson, LLP "As a CFO of small to mid-sized publicly traded and privately held companies, one is usually faced with the challenge of developing and implementing the right levels of internal controls and compliance within the restrictions of limited financial and human resources. Internal Control Strategies presents the relevant topics in a clear and concise manner, allowing the reader to understand the internal control framework and specific underlying requirements quickly. The author's vast experience with SOX compliance ensures a targeted and pragmatic approach for the successful implementation of internal controls. Her recommendations are 'to the point' and eliminate some of the guesswork we all have experienced while working towards SOX compliance." -Robert S. Stefanovich, Chief Financial Officer, Novalar Pharmaceuticals, Inc. The SEC requires all publicly traded companies to attest to theeffectiveness of their internal controls. Is your business ready? Internal Control Strategies: A Mid to Small Business Guide clearly explains the latest PCAOB, SEC, and COSO guidance, providing you with an effective tool and reference guide for successful implementation of sections 302 and 404 of the Sarbanes-Oxley Act. Extremely knowledgeable and insightful, author Julie Harrer brings practical clarity to this complex topic, leading you step by step in addressing the challenges associated in bringing your business in compliance with SOX.

How to Comply with Sarbanes-Oxley Section 404

Author : Michael J. Ramos
Publisher : John Wiley & Sons
ISBN 13 : 0470259221
Total Pages : 282 pages
Book Rating : 4.4/5 (72 download)

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Book Synopsis How to Comply with Sarbanes-Oxley Section 404 by : Michael J. Ramos

Download or read book How to Comply with Sarbanes-Oxley Section 404 written by Michael J. Ramos and published by John Wiley & Sons. This book was released on 2008-06-02 with total page 282 pages. Available in PDF, EPUB and Kindle. Book excerpt: Now fully revised and updated, the Third Edition of How to Comply with Sarbanes-Oxley Section 404: Assessing the Effectiveness of Internal Control is the perfect starting point for companies with no previous SOX experience. Packed with practice aids including forms, checklists, illustrations, diagrams, and tables, the new edition leads auditing professionals through every step of the audit processes associated with Section 404 compliance.

A Guide to the New Language of Accounting and Finance

Author : Roger Hussey
Publisher : Business Expert Press
ISBN 13 : 1637421303
Total Pages : 180 pages
Book Rating : 4.6/5 (374 download)

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Book Synopsis A Guide to the New Language of Accounting and Finance by : Roger Hussey

Download or read book A Guide to the New Language of Accounting and Finance written by Roger Hussey and published by Business Expert Press. This book was released on 2021-10-15 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: The disciplines of accounting and finance have been rapidly changing in recent years. The methods and techniques being used have created a new language for managers, students, practitioners, academics. The Guide focuses specifically on the terms used in accounting and finance. Important terms and phrases are identified but with a much longer, in-depth explanation than you would normally find in a dictionary. Not only does each entry gives a thorough explanation of each term, it provides two or more references to academic articles that go into much greater depth. Hence, the entries give the reader immediate access to the literature. At the end of the book, the full reference to all the articles that have been cited in the text is given including a list of the many acronyms used in the new world of accounting and finance.

The Association Between Internal Control Material Weakness and Real Earnings Manipulation

Author : Isaac Bonaparte
Publisher :
ISBN 13 :
Total Pages : 172 pages
Book Rating : 4.:/5 (115 download)

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Book Synopsis The Association Between Internal Control Material Weakness and Real Earnings Manipulation by : Isaac Bonaparte

Download or read book The Association Between Internal Control Material Weakness and Real Earnings Manipulation written by Isaac Bonaparte and published by . This book was released on 2013 with total page 172 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the association between internal control material weakness under Section 404 of the Sarbanes-Oxley Act of 2002 and real earnings manipulation. The results indicate that manufacturing firms reporting material weaknesses in internal control grant excessive price discounts to temporarily increase sales. They also overproduce to reduce the cost of goods sold, and reduce their discretionary expenses to enhance reported earnings. Another result that emerges from this study is that manufacturing firms in litigious industries are less likely to engage in real earnings manipulation. Segregating the sample into remediating and non-remediating firms, the results suggest that real earnings manipulation significantly attenuates when firms remediate their internal control material weaknesses. Furthermore, there is no significant difference in real earnings manipulation between firms with contained internal control material weaknesses and those with pervasive internal control material weaknesses.-- Abstract.

The Disclosure of Material Weaknesses in Internal Control After the Sarbanes-Oxley Act

Author : Weili Ge
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis The Disclosure of Material Weaknesses in Internal Control After the Sarbanes-Oxley Act by : Weili Ge

Download or read book The Disclosure of Material Weaknesses in Internal Control After the Sarbanes-Oxley Act written by Weili Ge and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper focuses on a sample of 261 companies that have disclosed at least one material weakness in internal control in their SEC filings after the effective date of the Sarbanes-Oxley Act of 2002. Based on the descriptive material weakness disclosures provided by management, we find that poor internal control is usually related to an insufficient commitment of resources for accounting controls. Material weaknesses in internal control tend to be related to deficient revenue recognition policies, lack of segregation of duties, deficiencies in the period-end reporting process and accounting policies, and inappropriate account reconciliation. The most common account-specific material weaknesses occur in the current accrual accounts, such as the accounts receivable and inventory accounts. Material weakness disclosures by management also frequently describe internal control problems in complex accounts, such as the derivative and income tax accounts. In our statistical analysis, we find that disclosing a material weakness is positively associated with business complexity (e.g., multiple segments and foreign currency), negatively associated with firm size (e.g., market capitalization), and negatively associated with firm profitability (e.g., return on assets).

Earnings Quality

Author : Patricia M. Dechow
Publisher : Research Foundation of the Institute of Chartered Financial Analysts
ISBN 13 : 9780943205687
Total Pages : 152 pages
Book Rating : 4.2/5 (56 download)

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Book Synopsis Earnings Quality by : Patricia M. Dechow

Download or read book Earnings Quality written by Patricia M. Dechow and published by Research Foundation of the Institute of Chartered Financial Analysts. This book was released on 2004-01-01 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Market Reactions to the Disclosure of Internal Control Weaknesses and to the Characteristics of Those Weaknesses Under Section 302 of the Sarbanes Oxley Act of 2002

Download Market Reactions to the Disclosure of Internal Control Weaknesses and to the Characteristics of Those Weaknesses Under Section 302 of the Sarbanes Oxley Act of 2002 PDF Online Free

Author : Jacqueline S. Hammersley
Publisher :
ISBN 13 :
Total Pages : 42 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Market Reactions to the Disclosure of Internal Control Weaknesses and to the Characteristics of Those Weaknesses Under Section 302 of the Sarbanes Oxley Act of 2002 by : Jacqueline S. Hammersley

Download or read book Market Reactions to the Disclosure of Internal Control Weaknesses and to the Characteristics of Those Weaknesses Under Section 302 of the Sarbanes Oxley Act of 2002 written by Jacqueline S. Hammersley and published by . This book was released on 2007 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under Section 302 of the Sarbanes Oxley Act, officers must evaluate the effectiveness of internal controls quarterly. We examine the stock price reaction to management's disclosure of internal control weaknesses and to their characteristics, controlling for other material announcements are made during the event window. We find evidence suggesting that some characteristics of the internal control weaknesses - their severity, management's conclusion regarding the effectiveness of the controls, their auditability, and how vague the disclosures are - are informative. In subsequent analyses, we find that the relation between returns and auditability holds for significant deficiencies and control deficiencies as well as for material weaknesses. However, the relation between returns and how vague the disclosure is is driven by the observations with material weaknesses. This suggests that the information content of internal control weakness disclosures depends on the severity of the internal control weakness.

Determinants of Weaknesses in Internal Control over Financial Reporting

Author : Jeffrey T. Doyle
Publisher :
ISBN 13 :
Total Pages : 49 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Determinants of Weaknesses in Internal Control over Financial Reporting by : Jeffrey T. Doyle

Download or read book Determinants of Weaknesses in Internal Control over Financial Reporting written by Jeffrey T. Doyle and published by . This book was released on 2010 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine determinants of internal control deficiencies using a sample of 779 firms disclosing material weaknesses from August 2002 to August 2005. We find that material weaknesses in internal control are more likely for firms that are smaller, younger, financially weaker, more complex, growing rapidly, or undergoing restructuring. We next investigate whether these determinants differ based on whether the problem is at the transaction-level or is a more serious company-level problem. We find that firms with more serious entity-wide control problems are smaller, younger and weaker financially, while firms with account-specific problems tend to be healthy financially, but have complex, diversified, and rapidly changing operations. We also provide evidence that the determinants vary based on the specific reason for the material weakness. For example, firm size and age are strong determinants of staffing issues, consistent with each firm facing their own unique set of internal control challenges.

Corporate Hedging, Information Environment, and Stock Price Crash Risk

Author : Jeong-Bon Kim
Publisher :
ISBN 13 :
Total Pages : 57 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Corporate Hedging, Information Environment, and Stock Price Crash Risk by : Jeong-Bon Kim

Download or read book Corporate Hedging, Information Environment, and Stock Price Crash Risk written by Jeong-Bon Kim and published by . This book was released on 2018 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the effect of corporate hedging on stock price crash risk. We test two competing hypotheses. Under the transparency hypothesis, hedging reduces a firm's information asymmetry and lowers crash risk. Under the opacity hypothesis, hedging decreases financial reporting quality and increases crash risk. Using a comprehensive sample of firms from 1996 to 2015, we find evidence in support of the transparency hypothesis. This result is robust to various sensitivity checks, including treatment model, difference-in-differences test, and subsample analysis. We further show that curbing bad news hoarding, curtailing overinvestment, and increasing breadth of ownership are potential channels through which hedging mitigates crash risk. Additional tests on securities class-action litigations provide consistent results.

The Sarbanes-Oxley Act

Author : Michael F. Holt
Publisher : Butterworth-Heinemann
ISBN 13 : 0080554601
Total Pages : 219 pages
Book Rating : 4.0/5 (85 download)

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Book Synopsis The Sarbanes-Oxley Act by : Michael F. Holt

Download or read book The Sarbanes-Oxley Act written by Michael F. Holt and published by Butterworth-Heinemann. This book was released on 2007-11-16 with total page 219 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Sarbannes-Oxley Act (SOX) is a mandatory requirement for all listed corporations in the US, whether foreign or not. Compliance is not an option. Other countries are developing similar legislation so the books value is international in scope. SOX is a hot topic and the effects are just beginning to be felt world-wide. This new book goes beyond the implementation phase of SOX and looks at the reaction to the Act in terms of costs, benefits and business impacts. This book is for Senior Managers in the Business and Financial/Accounting Communities who want/need to know what the reaction of business and government is to the SOX legislation, what it is costing and how the effects are penetrating through the business environment. Mike Holt presents a comprehensive review of the impact that Sarbanes-Oxley legislation has had on business, the financial community, governments and the public since its inception in 2002. The Sarbanes-Oxley Act has been somewhat successful, but not completely and the cost (well over a trillion dollars) might be considered too high a price to pay for the gains. This book takes a hard look at the costs, benefits and other impacts as well as at what influential and prominent financial, government and business leaders think about it now. * International in scope and content and including interviews with prominent business leaders, CEOs and CFOs of large and small corporations. * Compliance with The Sarbanes-Oxley Act is now mandatory for every listed US corporation and overseas corporations listed on US stock markets. * Covers the reaction of business and government to this legislation, what it is costing and how the effects are penetrating through the business environment.

Material Weaknesses in Tax-Related Internal Controls and Last Chance Earnings Management

Author : Cristi A. Gleason
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Material Weaknesses in Tax-Related Internal Controls and Last Chance Earnings Management by : Cristi A. Gleason

Download or read book Material Weaknesses in Tax-Related Internal Controls and Last Chance Earnings Management written by Cristi A. Gleason and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate consequences of tax-related material weaknesses in firms' internal controls over financial reporting. We hypothesize that the presence of internal control material weaknesses (i.e., ICMWs) over the tax function makes earnings management through the income tax accrual (Dhaliwal et al. 2004) easier to implement relative to firms with non-tax-related ICMWs. We also predict that the remediation of tax-related ICMWs has the effect of constraining earnings management through the tax accrual. The results provide support for our predictions and suggest that tax-related ICMWs are associated with greater tax-expense management.