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Title: Mandatory management disclosure and mandatory independent audit of internal controls : evidence of configural information processing by investors
Authors: Kelly, Khim
Tan, Hun-Tong
Keywords: Mandatory Management Disclosure
Internal Controls Over Financial Reporting
Issue Date: 2017
Source: Kelly, K., & Tan, H.-T. (2017). Mandatory management disclosure and mandatory independent audit of internal controls : evidence of configural information processing by investors. Accounting, Organizations and Society, 56, 1-20.
Series/Report no.: Accounting, Organizations and Society
Abstract: We conduct an experiment where alumni participants from a Canadian accounting and finance undergraduate program assume they are in one of four regulatory regimes (manipulated between-subjects) and make investment potential evaluations for two firms (manipulated within-subjects): a firm disclosing no material weaknesses (No-MW disclosure firm) and a firm disclosing material weaknesses (MW disclosure firm) in internal controls over financial reporting (ICFR). We find evidence of configural information processing. For the No-MW disclosure firm, mandatory (versus voluntary) disclosure of ICFR material weaknesses and mandatory (versus voluntary) independent ICFR audit are substitutes in enhancing investment potential evaluations. However, for the MW disclosure firm, neither mandatory disclosure nor mandatory audit has any effect on investment potential evaluations. Supplementary experiments with undergraduate participants suggest that the pattern of configural information processing is a function of participants' knowledge of company disclosure incentives and the assurance value of an audit, wherein undergraduates with lower levels of knowledge are less able to perceive the effects of mandatory disclosure and mandatory audit on investment potential evaluations. Our findings have implications for regulators who are concerned about balancing the costs and benefits of different regulatory mechanisms.
ISSN: 0361-3682
DOI: 10.1016/j.aos.2016.12.002
Rights: © 2016 Elsevier Ltd. This is the author created version of a work that has been peer reviewed and accepted for publication by Accounting, Organizations and Society, Elsevier Ltd. It incorporates referee’s comments but changes resulting from the publishing process, such as copyediting, structural formatting, may not be reflected in this document. The published version is available at: [].
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:NBS Journal Articles

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