Melbourne Accounting Research Seminar - Joe Schroeder

Melbourne Accounting Research Seminars
Melbourne Accounting Research Seminars

Associate Professor Joe Schroeder from Indiana University will present a MARS seminar.

Topic: Operational Externalities of Intense Scrutiny over Financial Reporting Controls

Abstract: In this study, we examine how intense scrutiny over financial reporting controls affects operating control outcomes. Increasing emphasis on internal controls over financial reporting (ICFR) might require firms to modify resource allocations within control systems, such that the quality of operating controls could improve or deteriorate. Using a sample of firms subject to FDA inspections, we find that introducing intense scrutiny leads to improvements in operating controls, as evidenced by lower probabilities of regulatory deficiencies. Resource availability helps firms enhance the observed benefits, while resource constraints force firms to focus on financial reporting controls, at the expense of their regulatory compliance. Our results suggest that intensified ICFR scrutiny facilitates a complementary relationship between financial reporting and operating controls: firms implement system-wide changes that advance both functions. Identifying this positive externality is important because many stakeholders question whether the benefits of the increased ICFR focus introduced by the Sarbanes-Oxley Act (SOX) outweigh the costs.

This seminar will be conducted remotely via Zoom. Register for this seminar

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