IDEAS home Printed from https://ideas.repec.org/a/ibn/ijbmjn/v13y2021i11p17.html
   My bibliography  Save this article

Effects of Materiality Assessment on Internal Controls over Financial Reporting Maturity

Author

Listed:
  • Stefano Azzali
  • Tatiana Mazza
  • Luca Fornaciari
  • Laura Trinchera

Abstract

The paper investigates the effects of materiality assessment on Internal Controls over Financial Reporting (ICFR) Maturity. Based on private data collected from Italian listed companies, the paper aims to provide a unique score for assessing ICFR Maturity of a company and to assess the effect of quantitative and qualitative factors used to evaluate materiality. Specifically, it examines the processes used to identify significant entities, significant accounts and associating accounts with process. A Partial Least Squares (PLS) Path Modeling approach is used. Among quantitative factors, total assets, sales and earnings before taxation are the best accounting measures used by companies to select entities, while income statement value is more useful than the balance sheet in selecting significant accounts. This last activity is relatively more relevant that the others. Scoping results show- 1) the importance of identification of entities at group level; 2) multiple association accounts – processes is better than single association. Finally results show different effects on ICFR Maturity for the manufacturing and services industry and for the financial industry.

Suggested Citation

  • Stefano Azzali & Tatiana Mazza & Luca Fornaciari & Laura Trinchera, 2021. "Effects of Materiality Assessment on Internal Controls over Financial Reporting Maturity," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(11), pages 1-17, July.
    • Handle: RePEc:ibn:ijbmjn:v:13:y:2021:i:11:p:17
    as

    Download full text from publisher

    File URL: http://www.ccsenet.org/journal/index.php/ijbm/article/download/0/0/37127/37277
    Download Restriction: no
    File URL: http://www.ccsenet.org/journal/index.php/ijbm/article/view/0/37127
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michela Nardo & Michaela Saisana & Andrea Saltelli & Stefano Tarantola & Anders Hoffman & Enrico Giovannini, 2005. "Handbook on Constructing Composite Indicators: Methodology and User Guide," OECD Statistics Working Papers 2005/3, OECD Publishing.
    2. Messier, Wf, 1983. "The Effect Of Experience And Firm Type On Materiality Disclosure Judgments," Journal of Accounting Research, Wiley Blackwell, vol. 21(2), pages 611-618.
    3. Francis, Jere R., 2004. "What do we know about audit quality?," The British Accounting Review, Elsevier, vol. 36(4), pages 345-368.
    4. Takiah Mohd Iskandar & Errol R Iselin, 1999. "A review of materiality research," Accounting Forum, Taylor & Francis Journals, vol. 23(3), pages 209-239, September.
    5. Tenenhaus, Michel & Vinzi, Vincenzo Esposito & Chatelin, Yves-Marie & Lauro, Carlo, 2005. "PLS path modeling," Computational Statistics & Data Analysis, Elsevier, vol. 48(1), pages 159-205, January.
    6. Joyce, Ej, 1976. "Expert Judgment In Audit Program Planning," Journal of Accounting Research, Wiley Blackwell, vol. 14, pages 29-60.
    7. Carpenter, Brian W. & Dirsmith, Mark W., 1992. "Early debt extinguishment transactions and auditor materiality judgments: A bounded rationality perspective," Accounting, Organizations and Society, Elsevier, vol. 17(8), pages 709-739, November.
    8. Carpenter, Brian W. & Dirsmith, Mark W. & Gupta, Parveen P., 1994. "Materiality judgments and audit firm culture: Social-behavioral and political perspectives," Accounting, Organizations and Society, Elsevier, vol. 19(4-5), pages 355-380.
    9. Baolei Qi & Liuchuang Li & Qing Zhou & Jinghui Sun, 2017. "Does internal control over financial reporting really alleviate agency conflicts?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(4), pages 1101-1125, December.
    10. Wu, Xi & Wang, Jun, 2018. "Management's Materiality Criteria of Internal Control Weaknesses and Corporate Fraud: Evidence from China," The International Journal of Accounting, Elsevier, vol. 53(1), pages 1-19.
    11. Moriarity, S & Barron, Fh, 1976. "Modeling Materiality Judgments Of Audit Partners," Journal of Accounting Research, Wiley Blackwell, vol. 14(2), pages 320-341.
    12. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    13. Arnold, Donald Sr. & Bernardi, Richard A. & Neidermeyer, Presha E., 2001. "The association between European materiality estimates and client integrity, national culture, and litigation," The International Journal of Accounting, Elsevier, vol. 36(4), pages 459-483, 012.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Edgley, Carla, 2014. "A genealogy of accounting materiality," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 25(3), pages 255-271.
    2. Gullkvist, Benita & Jokipii, Annukka, 2013. "Perceived importance of red flags across fraud types," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 24(1), pages 44-61.
    3. Edgley, Carla & Jones, Michael J. & Atkins, Jill, 2015. "The adoption of the materiality concept in social and environmental reporting assurance: A field study approach," The British Accounting Review, Elsevier, vol. 47(1), pages 1-18.
    4. Hassan Lahbari & Riadh Manita, 2011. "L'impact des facteurs qualitatifs sur les jugements éthiques de la matérialité en audit," Post-Print hal-00650541, HAL.
    5. Javier Montoya del Corte & Francisco Javier Martínez García & Ana Fernández Laviada, 2010. "Effective use of qualitative materiality factors: evidence from Spain," Managerial Auditing Journal, Emerald Group Publishing, vol. 25(5), pages 458-483, May.
    6. Ghafran, Chaudhry & O'Sullivan, Noel, 2017. "The impact of audit committee expertise on audit quality: Evidence from UK audit fees," The British Accounting Review, Elsevier, vol. 49(6), pages 578-593.
    7. Sadok Mansour, 2007. "Modelisation Du Risque Dans Les Methodologies D'Audit : Apport Des De La Psychometrie," Post-Print halshs-00543217, HAL.
    8. Kharuddin, Khairul Ayuni Mohd & Basioudis, Ilias G & Farooque, Omar Al, 2021. "Effects of the Big 4 national and city-level industry expertise on audit quality in the United Kingdom," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 43(C).
    9. repec:mth:ijafr8:v:9:y:2019:i:1:p:450-461 is not listed on IDEAS
    10. Ya-Fang Wang, 2020. "New Insights on Audit Quality," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 13(1), pages 21-28, April.
    11. Donelson, Dain C. & Ege, Matthew & Imdieke, Andrew J. & Maksymov, Eldar, 2020. "The revival of large consulting practices at the Big 4 and audit quality," Accounting, Organizations and Society, Elsevier, vol. 87(C).
    12. Fakhroddin MohammadRezaei & Omid Faraji & Zabihollah Rezaee & Reza Gholami-Jamkarani & Mehdi Yari, 2024. "Substantive or symbolic compliance with regulation, audit fees and audit quality," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(1), pages 32-51, March.
    13. repec:dau:papers:123456789/3528 is not listed on IDEAS
    14. E. Michael Bamber & Joseph H. Bylinski, 1987. "The effects of the planning memorandum, time pressure and individual auditor characteristics on audit managers' review time judgments," Contemporary Accounting Research, John Wiley & Sons, vol. 4(1), pages 127-143, September.
    15. Guangming Gong & Liang Xiao & Si Xu & Xun Gong, 2019. "Do Bond Investors Care About Engagement Auditors’ Negative Experiences? Evidence from China," Journal of Business Ethics, Springer, vol. 158(3), pages 779-806, September.
    16. Francis, Jere R., 2023. "Going big, going small: A perspective on strategies for researching audit quality," The British Accounting Review, Elsevier, vol. 55(2).
    17. Jean Damascene Mvunabandi & Haruna Maama, 2023. "The Impact of Ethics on the Audit Quality of Firms in Sub-Sahara Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 13(5), pages 119-127, September.
    18. Alhababsah, Salem & Alhaj-Ismail, Alaa, 2023. "Does shared tenure between audit committee chair and engagement partner affect audit outcomes? Evidence from the UK," The British Accounting Review, Elsevier, vol. 55(2).
    19. Balasingham Balachandran & Robert Faff & Lily H. G. Nguyen & Premkanth Puwanenthiren, 2020. "The impact of audit quality in rights offerings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2007-2037, September.
    20. Helmi A. Boshnak, 2021. "The Impact of Audit Committee Characteristics on Audit Quality: Evidence from Saudi Arabia," International Review of Management and Marketing, Econjournals, vol. 11(4), pages 1-12.
    21. Alhababsah, Salem & Yekini, Sina, 2021. "Audit committee and audit quality: An empirical analysis considering industry expertise, legal expertise and gender diversity," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    22. Brandon Gipper & Christian Leuz & Mark Maffett, 2015. "Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime," NBER Working Papers 21530, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibn:ijbmjn:v:13:y:2021:i:11:p:17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Canadian Center of Science and Education (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.