Internal Control Weaknesses and Accounting Conservatism

• Main Authors: Yu-Fen Huang, 黃郁芬
• Other Authors: Ching-Lung Chen
• Format: Others
• Language: zh-TW
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/43937170090585872213

碩士 === 國立雲林科技大學 === 會計系 === 102 === Based on the empirical model suggested by Basu (1997), this study examines whether internal control weaknesses affect accounting conservatism of listed firms in Taiwan. Prior studies suggest that accounting conservatism has many benefits, e.g., reduce litigation risk and mitigate agency problems. This study conjectures that firms with internal control weaknesses will use more conservative reporting practice in order to reduce its litigation risks, thus in turn, internal control weakness is positively associated with accounting conservatism. Our multivariate analyses show that firms with internal control weaknesses exhibit greater accounting conservatism when compared with firms with effective internal controls. The finding suggests that internal control weaknesses have induced firms to use more conservative accounting policies, thereby enhance the timeliness of financial statements and reduce litigation risks. This study implements several diagnostic checks and demonstrates the empirical results are robust to various specifications.