Online from: 1986
Subject Area: Accounting and Finance
|Title:||The effect of IT controls on financial reporting|
|Author(s):||Gerry H. Grant, (California State University, Fullerton, California, USA), Karen C. Miller, (Union University, Jackson, Tennessee, USA), Fatima Alali, (California State University, Fullerton, California, USA)|
|Citation:||Gerry H. Grant, Karen C. Miller, Fatima Alali, (2008) "The effect of IT controls on financial reporting", Managerial Auditing Journal, Vol. 23 Iss: 8, pp.803 - 823|
|Keywords:||Communications technologies, Financial reporting, Legislation, United States of America|
|Article type:||Research paper|
|DOI:||10.1108/02686900810899536 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
Purpose – The purpose of this paper is to examine information technology (IT) control deficiencies and their affect on financial reporting.
Design/methodology/approach – This study examines 278 companies reporting IT control deficiencies in the first three years of the SOX 404 requirements (2004-2006). Using quantitative analysis, the study evaluates the impact of IT deficiencies on financial reporting and determines significant differences between companies that report IT deficiencies and companies that do not report IT deficiencies.
Findings – Four accounting errors: revenue recognition issues; receivables, investments and cash issues; inventory, vendor and cost of sales issues; and financial statement, footnote, US GAAP, and segment disclosures issues stand out as common financial reporting problems in companies reporting weak IT controls. This study also suggests that companies with IT control deficiencies report more internal control (IC) deficiencies, are smaller, pay higher audit fees, and are typically audited by smaller accounting firms.
Research limitations/implications – This research is limited in scope since only SOX accelerated filers are included in the analysis. As of this study, smaller, non-accelerated filers are not required to report IC control weaknesses under SOX.
Originality/value – As of this research, no analysis exists to support or refute the relationship of IT controls and accounting errors. This study re-affirms the widespread impact that deficient IT controls can have on the overall IC structure of the business. Our study reveals some of the important issues associated with IT in the financial reporting process. The role of IT in financial reporting systems is destined to escalate. Studies, like ours, can help managers and auditors identify IT problems that affect financial reporting and take remedial steps to correct these weaknesses.
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