Misclassification of audit-related fees as a measure of internal control quality
Document Type
Article
Publication Date
9-1-2019
Abstract
There is an abundance of literature examining the effects of a poor internal control system on financial reporting quality, decision-making and auditing. However, the most commonly used proxy for internal control quality (i.e., a material weakness in the internal controls over financial reporting) occurs relatively infrequently and has declined in occurrence over the past decade (Chasan, 2013). In this study, we attempt to develop an alternative measure for internal control quality using the information reported in the S[sbnd]K portion of a firm's 10-K. We suggest that a misclassification of audit-related fees in the unaudited disclosures of the annual report is a proxy for low internal control quality. Consistent with lower internal control quality, we find that firms misclassifying audit-related fees are more likely to report a material weakness, are less timely filers (longer report lag) and pay higher audit fees. Our findings suggest that misclassification of audit-related fees correlate with having poor internal control quality.
Publication Source (Journal or Book title)
Advances in Accounting
Recommended Citation
Buslepp, W., Legoria, J., Rosa, R., & Shaw, D. (2019). Misclassification of audit-related fees as a measure of internal control quality. Advances in Accounting, 46 https://doi.org/10.1016/j.adiac.2019.100425