Nonprofessional investor perceptions of the partial remediation of IT and non-IT control weaknesses: An experimental investigation
| Autor: | Amanuel F. Tadesse, Uday S. Murthy |
|---|---|
| Rok vydání: | 2018 |
| Předmět: |
Counterfactual thinking
Weakness 050208 finance Information Systems and Management business.industry media_common.quotation_subject 05 social sciences Control (management) Information technology Accounting 050201 accounting Audit Management Information Systems Identification (information) Perception 0502 economics and business Credibility medicine Business medicine.symptom Finance media_common |
| Zdroj: | International Journal of Accounting Information Systems. 28:14-30 |
| ISSN: | 1467-0895 |
| DOI: | 10.1016/j.accinf.2017.12.001 |
| Popis: | In this study, we investigate whether nonprofessional investors' judgments about a firm with known and disclosed material weaknesses in internal control as required by the Sarbanes Oxley (SOX) Act of 2002 depend on the remediation strategy used by the firm. Analysis of SOX internal control weakness disclosures reveals that firms (1) often have multiple internal control weaknesses, (2) frequently have a mix of information technology (IT) and non-IT control weaknesses, and (3) invariably fail to remediate all control weaknesses in the period they are identified. We design an experiment to investigate how nonprofessional investors respond to remediation of a subset of disclosed material weaknesses in internal control, when a firm discloses a remediation plan that prioritizes the remediation of an IT (non-IT) internal control weakness leaving a non-IT (IT) weakness unremediated. We apply counterfactual theory to the future oriented remediation setting and find that investors favor a firm remediation strategy that prioritizes the remediation of an IT weakness over a strategy that prioritizes the remediation of a non-IT weakness. We further find that perceived effectiveness of remediation, financial misstatement risk attributed to the unresolved internal control weakness, and management credibility fully mediate the relation between company remediation strategies and investing judgments. These findings should be informative to both auditors and management when confronted with a range of IT and non-IT internal control weaknesses following the initial identification and disclosure of multiple material weaknesses as required by SOX. |
| Databáze: | OpenAIRE |
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