Publication Type
Journal Article
Version
submittedVersion
Publication Date
5-2011
Abstract
This study examines the relation between internal controls and conditional conservatism (“conservatism”), also referred to as timely loss recognition. Using a sample of firms that disclose material weaknesses (MWs) in internal controls under the Sarbanes-Oxley Act (SOX), we find a positive relation between internal control quality and conservatism. Specifically, firms with MWs exhibit lower conservatism than firms without such weaknesses. Further, firms that disclose MWs and subsequently remediate these weaknesses exhibit greater conservatism than firms that continue to have MWs. Overall, these results are consistent with strong internal controls acting as a mechanism that facilitates conservatism. Our study contributes to the literature on the reporting effects of strong versus weak internal controls.
Keywords
internal controls, conservatism, material weaknesses; Sarbanes-Oxley Act
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
Accounting Review
Volume
86
Issue
3
First Page
975
Last Page
1005
ISSN
0001-4826
Identifier
10.2308/accr.00000041
Publisher
American Accounting Association
Citation
GOH, Beng Wee and LI, Dan.
Internal Controls and Conditional Conservatism. (2011). Accounting Review. 86, (3), 975-1005.
Available at: https://ink.library.smu.edu.sg/soa_research/778
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2308/accr.00000041