| Summary: | 碩士 === 中原大學 === 會計研究所 === 99 === Financial statement frauds, embezzlements of assets and bankruptcy cases have increasingly grown in recent years. The reason is that most of these companies do not implement effective internal controls. In order to enforce internal control system on companies further and keep it working effectively, Taiwan Stock Exchange Corporation (TWSE) and Taiwan Gre Tai Securities Market (GTSM) required in 1997 that those listed and OTC companies should perform self-assessment on their internal control and prepare internal control report for CPA-auditing. Internal control report should be submitted yearly and published in the annual report and the prospectus. Consequently, CPA plays an important role in assessing the effectiveness of internal control. Just like CPA, credit rating agencies play a similar role in the effectiveness assessment. This study therefore aims to investigate whether the credit risk grade will affect the occurrence of internal control weakness or not. This study also explores account-level weakness and firm-level weakness to see the influence of credit risk grade on the different types of internal control weakness.
As the empirical results show, credit risk rating is significantly positive correlated with the disclosure of internal control weakness. The outcome indicates that when credit rating agencies rate a good grade on a company, the company also tends to supervise its internal control more seriously, thereby reducing the probability of internal control weakness. In addition, the study also finds that no matter how the internal control weakness is classified, the probability of serious weakness occurred in the internal control can be much reduced if agencies rate a good grade on the company.
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