Examining the Potential Benefits of Internal Control Monitoring Technology

We analyze the potential benefits that firms can realize from implementing technology specifically aimed at monitoring the effectiveness of their internal control systems. The Committee of Sponsoring Organizations of the Treadway Commission asserts that effective internal control monitoring should e...

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Bibliographic Details
Published in:The Accounting review 2010-05, Vol.85 (3), p.1001-1034
Main Authors: Masli, Adi, Peters, Gary F., Richardson, Vernon J., Sanchez, Juan Manuel
Format: Article
Language:English
Subjects:
Advantages
Auditing
Business audits
Business structures
Compliance costs
Efficiency
Fees
Financial audits
Financial control
Financial reporting
Hypotheses
Information storage and retrieval systems
Information technology
Internal audits
Internal controls
Legislation
Monitoring
Public Company Accounting Reform & Investor Protection Act 2002-US
Studies
Technological change
Technology
Technology adoption
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Summary:We analyze the potential benefits that firms can realize from implementing technology specifically aimed at monitoring the effectiveness of their internal control systems. The Committee of Sponsoring Organizations of the Treadway Commission asserts that effective internal control monitoring should enhance the efficiency of internal control processes, and, in turn, the assurance over such processes (COSO 2009a). We develop hypotheses to test the realization of these potential benefits. Specifically, we identify a sample of firms that implemented internal control monitoring technology in response to the internal control requirements of the Sarbanes-Oxley Act. Consistent with our hypotheses, we document that the implementation of internal control monitoring technology is associated with lower likelihood of material weaknesses, smaller increases in audit fees, and smaller increases in audit delays during the post-SOX time period. We discuss the potential implications of our findings for research related to continuous monitoring, client-provided assurance assistance, and information technology governance.
ISSN:0001-4826
1558-7967
DOI:10.2308/accr.2010.85.3.1001