Do Small Firms Benefit from Auditor Attestation of Internal Control Effectiveness?

Posted: 21 Jul 2012 Last revised: 22 Oct 2013

See all articles by Gopal V. Krishnan

Gopal V. Krishnan

Bentley University

Wei Yu

Hunter College - City University of New York

Date Written: July 20, 2012

Abstract

While auditor attestation of the effectiveness of internal control over financial reporting (ICFR) is required for firms with a public float of at least $75 million (accelerated filers), the SEC has delayed auditor attestation for non-accelerated filers several times. The Dodd-Frank Act of 2010 exempts non-accelerated filers from auditor attestation. We examine the relation between auditor attestation and revenue quality for a sample of non-accelerated filers and small accelerated filers. We find that discretionary (abnormal) revenues, our proxy for revenue quality, are lower by about 1.5% of total assets for accelerated filers relative to non-accelerated filers. This finding holds even among firms whose management has certified their ICFR to be effective. Overall, the findings support the notion that auditor attestation of the effectiveness of ICFR benefits small accelerated filers via higher revenue quality. We believe our findings are timely and potentially informative to regulators, investors, and others.

Keywords: Dodd-Frank Act, SOX 404, Revenue quality, Non-accelerated filers, Valuation

Suggested Citation

Krishnan, Gopal and Yu, Wei, Do Small Firms Benefit from Auditor Attestation of Internal Control Effectiveness? (July 20, 2012). Auditing: A Journal of Practice & Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2114340

Gopal Krishnan (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2477 (Phone)

Wei Yu

Hunter College - City University of New York ( email )

695 Park Avenue
New York, NY 10065
United States

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